Credit cards are one of the most used financial products offered by banks and other financial institutions. We use them to pay for gasoline, buy groceries, or purchase some expensive items in our everyday lives. They represent a form of a loan, a revolving credit, to be precise. Which should be paid back, and the funds can be used again and again until the card expires. After which, the card should be renewed. Most probably, you have at least one credit card with you at the time of reading this post. But do you know what type of credit card you have? Do you know what types of credit cards are offered by the banks? Maybe you do, maybe you don’t. Whatever the answer, you should be familiar with the basic types of credit cards. You don’t know whether you will need some of them in the future.
In addition, getting to know the different types of credit cards, you should also understand how credit cards work. Credit cards can be a highly useful product if used in the right manner. On the other hand, a lack of understanding of how credit cards work could result in the accumulation of credit card debt. An expensive debt, that is.
Secured credit cards – as the name suggests, are credit cards issued based on some collateral. Thus, secured credit cards are issued when a security deposit is put on the card. The deposit serves as a guarantee for the lender in case you fail to repay your balance. In most cases, the amount of security deposit determines the credit card limit. Although you have put a deposit on your credit card, you should still make a monthly payment, which means that you should pay the minimum monthly payments stated in the agreement. This type of credit card is usually used by people with no credit history. Secured credit cards are also used to rebuild credit history.
Unsecured credit cards – are widely used, because it does not require any form of collateral. The credit card limit is determined based on applicants’ credit history and the ability to repay the outstanding balance following the agreement.
Standard credit cards – also referred to as plain-vanilla credit cards, are standard credit cards. These cards don’t provide you with many rewards. It can be said that because of this, they are also rather simple to understand.
Balance transfer credit cards – is a card that provides you with a low introductory rate when making a balance transfer, from your old card to your new credit card. The introductory rate can vary from one credit card issuer to another. But it can go as low as 0% introductory APR rate. In addition, the low-interest rate offer is valid for a certain period. After the low-interest period expires, the APR would be in accordance with the agreement terms.
Rewards credit cards – As the name indicates, rewards credit cards are credit cards that provide an offer in the form of rewards on credit card purchases. They can be in the form of cashback credit cards, rewards in points, and travel rewards. Which reward credit card you will choose to a large extent depends on your personal preferences and needs.
Student credit cards – are credit cards created in accordance with student’s needs. Namely, this category of users rarely have a credit history, but they can benefit from having a credit card. In addition, student credit cards can offer different forms of perks (rewards).
Charge credit cards – might not have any finance charge or minimum payment. This is so because, with charge credit cards, you must repay the entire outstanding balance at the end of each month. Moreover, these cards do not have any limits. Failure to repay in full the outstanding balance will result in late payment fees. Furthermore, charge cards have a yearly fee, which could be higher than other credit cards.
Subprime credit cards – are usually associated with applicants with bad credit histories. Thus they bear rather high-interest rates and fees, for which they are considered one of the worst types of credit cards.
Prepaid credit cards – are in some way similar to secured credit cards. Credit card owners should deposit money onto the credit card before using it. When a purchase is made using this type of credit card, it is withdrawn from the card’s balance. Unless you deposit more money onto the card, the limit is not renewed. This is the main difference with the secured credit cards. In addition, unlike secured credit cards, prepaid credit cards do not have a finance charge or a monthly payment. Although referred to as credit cards, do not use them to rebuild your credit. From its characteristics, it could be said that prepaid credit cards are somewhat similar to debit cards.
Business credit cards – are credit cards issued to businesses. Namely, they are created to be used for business purposes. They come in handy for business owners to separate between personal transactions and transactions made for the business.
Premium credit cards – can offer more benefits and rewards than the other types of credit cards. To obtain a premium credit card (Platinum or Gold Cards), you should have an excellent credit history and higher income level (the exact income level required depends on the card issuer). In addition, this type of credit card offers a higher credit limit and, in some circumstances, can bear a lower APR.
Co-branded credit cards – are credit cards issued on the basis of co-sponsorship by two companies. This form of the credit card offers benefits and rewards aimed specifically at the customers of the companies.
Most probably, you will find a specific product to fulfill your different needs in today’s economy. It is the same with your financial needs as well. This is especially true when talking about the different types of credit cards. The types of credit cards are created to satisfy different financial needs for different customers. For instance, there is a credit card for people with no payment history or credit card to separate their personal expenses from business expenses.
For this reason, it is important that you are familiar with the different types of credit cards available. You never know what financial need you will have to cover.