Need a new credit card? Read this to find out what kind are available and which is best for you.
Not All Credit Cards Are The Same
Credit cards are a necessary tool in today’s financial environment. They provide liquidity for individuals and businesses and allow us to secure goods and reservations when we need them. Believe it or not there are quite a few different types of cards and they each have distinctly different features. The most basic difference is qualification. Qualification usually means credit score but can also refer to income levels, debt to equity, credit/spending history and others.
Standard Credit Card – This the most basic card and based on a revolving line of credit. Revolving credit means that a balance is set and you are allowed to spend up to that limit. If the limit is maxed out you can not make any more purchased until the balance is paid down. When you make payments and/or pay off the balance you free up the limit and are able to make purchases again. This type of card is unsecured and does not require deposit or other collateral. These cards are ranked in a couple of ways, the most common being APR and fees. APR, annual percentage rate, is the effective annual rate on your balance and determines how much interest you pay. Fees are charged by some cards but not all depending on type and benefits. Balance transfer cards are attractive for owners of high interest rate cards because they provide a period with low to no interest in exchange for opening a new account.
Reward Cards – There are a wide variety of reward types but all offer an incentive to spend. They typically accumulate points of miles that can be exchanged for goods and services, or even be applied to balances. These cards can come with rules, limits and restrictions so be sure to check with each before opening an account. Sometimes fees are also included which may make the card less than worthwhile. Points can be used to pay for hotels, airline flights and trips. A popular form of reward card is the gas card which gives discounts on gas purchases.
Cash Back Cards – Some cards offer cash back on purchases or balances. These can run in the range of 1-5% but come with limits. Often times qualifying purchases are bound to a category or categories and capped at a maximum amount. In some cases the cash back amount is flat and other it is tiered. The down side to these cards is that they tend to charge higher fees to consumers and merchants and are not as widely accepted as standard cards.
Premium, Gold And Platinum Cards – These cards are rewards to known credit card users with high credit scores and good credit history. They come with higher limits, over $10,000 in most cases, and are targeted at a specific part of the consumer credit market. These includes people with higher salaries, known big spenders and travelers who use their cards regularly.
Secured Credit Cards – Not be confused with a prepaid card or pay as you go card these are credit cards that require users to make a deposit before issuance. This type of card is useful to those establishing or reestablishing their credit and best if convertible. Convertible means that as you build history and score you earn the ability to convert the card to a standard unsecured card; deposits are applied to balances. The downside is that they charge higher rates and higher fees, the upside is that they provide a chance to build credit history. Limits are set based on a percent of the deposit and are usually leveraged to provide credit equal to twice the amount of the deposit.
Specialty Credit Cards – Specialty credit cards are cards issued by a specific retailer or organization. These include cards like one issued by Wal-Mart or a non-profit organization. Terms and benefits will vary but one significant fact remains; all transactions provide a small amount income to the issuer. The most common type are those issued by retailers in exchange for deal and discounts. Other types include partner cards where purchases in one store equal discounts in another such as some types of gas reward cards. The thing to watch out for with these is higher rates and possible fees.