Shopping around for a new credit card? Whether you're a credit newbie or you've been whipping out the plastic to pay for your purchases over the last few decades, the chances are your brain is reeling from the sheer volume of credit card products available today. What does each one do? Which type is right for you? How do you get the best deal?
Although you'll find that some credit card categories have overlapping features, the major types of credit cards include:
- Standard credit cards
- Secured credit cards
- Rewards credit cards
- Business credit cards
- Student credit cards
- Balance transfer cards
- 0% introductory APR cards
- Store cards
If you're feeling overwhelmed, don't worry. We'll walk through each credit card category and explain how to select the best one for your needs in this post. Let's begin with a basic breakdown of the various types and what you can expect.
What types of credit cards are there?
Before we get cracking, it's crucial to understand that credit cards are tailored to suit different consumer requirements, so each will have its own appeal. The one that's right for you will help you responsibly meet your financial needs while offering the best value. Be sure to use this as the lens through which you evaluate your options against your current financial goals.
1. Standard Credit Cards
Also known as unsecured credit cards, standard credit cards are your garden-variety cards with no frills and no requirements for a cash deposit as collateral. Besides often offering higher credit limits than other options, they give you more flexibility when it comes to your personal finances.
If you're looking for an uncomplicated card that offers low annual fees and can help you build good credit, then this might be the right choice for you. Depending on the credit network and issuer, you might also be entitled to a variety of fringe benefits such as rewards points, cash-back opportunities, and special discounts when you settle your balance each month.
However, there are some downsides. Since lenders are trusting you to pay back the money you borrow, you need a good credit score to be eligible for approval. These cards can also rack up interest relatively quickly, with many lenders charging additional fees for things like late payments, going over your credit limit, and more.
Credit Score Required: 670 or above. Some companies will accept a fair to good credit score (580-669), but then you should expect a lower credit limit and paying more in interest.
2. Secured Credit Cards
Unlike unsecured credit cards, this type of card does require collateral—often in the form of a cash deposit. For example, if you deposit $1000, a lender will extend a credit line to the value of $1000.
While this might seem counterintuitive if you want to loan money, a secured credit card can be a great fit if you need to establish credit from scratch or repair your current score. By doing it this way, lenders report activities like purchases and payments to credit bureaus, helping you create a positive credit history and proving your creditworthiness.
Credit Score Required: no minimum. Most lenders will approve people with bad scores, bankruptcies, or little to no credit history unless you have severe credit problems.
3. Rewards Credit Cards
These cards essentially reward you for using them. You'll find they come in an array of flavors to suit your financial taste buds. From cash-back, travel, and gas reward cards to grocery, dining, and streaming service reward cards, bonuses can include cash, gift cards, discounts, airline and frequent flier miles, and more.
Many of these coveted cards work on a tiered incentive system where you'll earn different rewards in different spending categories. Premium rewards cards tend to have the flashiest perks, but you'll need to have a good to excellent credit score, spend on your card often, and pay off the balance on time every month.
Credit Score Required: 670 or higher. However, the closer you are to a credit score of 850, the more likely it is that you'll qualify for cards with more valuable incentives.
4. Business Credit Cards
Specifically designed for business owners, business credit cards are often easier to apply for than a business loan. In addition, they help keep company expenses and personal finances separate. Many come with handy tracking abilities and reporting features that are more detailed than typical credit cards. Some even offer employee credit cards with certain restrictions and customizable spending limits.
Besides aiding in the management of cash flow by providing a convenient way to purchase large items and business essentials without needing funding upfront, these cards are often tied to a variety of rewards that incentivize business-related purchases like office supplies, shipping, advertising, and equipment. Unfortunately, business credit cards generally have higher interest rates than loans, so it's crucial to weigh up your options.
Credit Score Required: 670 or higher. Although cards are available for people with lower scores, they usually have higher annual percentage rates (APR) and fewer rewards.
Similar post: 24 Heaviest Credit Cards You Can Get in 2022 [ANSWERED]
5. Student Credit Cards
Aimed at young people with limited income and credit history, student credit cards are geared toward helping college students build their credit from scratch. Although there are less stringent requirements, credit limits are generally modest compared to other credit options, interest rates tend to be high, and application approval may be contingent on college enrollment. In addition, some student credit card products are secured, which means a cash deposit is required as collateral.
The upside for a student without much credit experience is that these cards often come with perks, such as cash back on all purchases, no annual fees, restaurant rewards, bonuses for good grades, and more.
Credit Score Required: no minimum, but some credit history may be required depending on the issuer.
6. Balance Transfer Cards
If you already own credit cards and you can't afford to pay off the balances in full each month, the chances are that the rolling debt is accumulating a small fortune in interest. A balance transfer card lets you refinance your credit card debt by transferring the amount (or part of the amount) to a low or no-interest card while you pay it down.
The transfer cost of a balance typically runs between 3% and 5%, but some cards don't have any transfer fees at all. In addition, the interest-free period is restricted (usually 15-21 months). If you can settle the debt within the defined period, then a balance transfer card might be the right solution for you—especially if you want to get rid of some high-interest credit cards.
Credit Score Required: 670 or higher. However, some secured credit card products tallow balance transfers if you have poor credit.
7. 0% Introductory APR Cards
This type of card lets you buy interest-free for a set number of months, making it an attractive option for large purchases. The intro period can last anywhere up to 18 months depending on the issuer, with some even offering sign-up bonuses and rewards.
In many cases, 0% introductory APR cards are preferable over loans of the same value, as long as you can pay the money back within the interest-free timeframe. However, it's crucial to check the post-intro APR, as well as any fine print, so that you know what you're getting into after the promotional phase ends.
Credit Score Required: 670 or higher. It's important to note that ongoing interest will depend on your creditworthiness, so you should aim to maintain a healthy credit report if you intend to keep the card long term.
8. Store Credit Cards
Reported as revolving credit, many retailers offer store credit cards that let you purchase items and pay them off over time. While most will only let you buy on credit at a specific store, others will let you purchase within a specific family of stores. These cards are a great option if you have almost no credit history or a poor to fair credit rating since approval is relatively easy, and they can help you build credit fast.
Besides discounts, store credit cards are often tied to a selection of rewards like store points, cashback, vouchers, and other incentives. However, interest rates can be high, and you need to ensure you pay your installment on time every month if you want to maintain good account standing.
Credit Score Required: required minimums vary, but most stores will issue store cards to individuals with a fair credit score, which starts at 580 points.
Now that you know what types of credit cards there are, how do you know which to pick?
Choosing Between Different Types of Credit Cards
Hopefully, our breakdown of each main credit card type has given you a clearer idea of what each one does and how it might be suited to your needs. That doesn't mean you shouldn't go comparison shopping within each category, though.
How to choose which credit card is right for you:
- Check your credit score
The better your score, the higher your chance of approval, lower interest rates, and greater perks. You might need to start building your credit score before applying.
- Identify which type of credit card you require
Based on the key categories outlined above, select the card type that best meets your financial goals.
- Compare available options within your chosen category
Besides evaluating features, make sure you compare things like APRs, rewards programs, fees, balance transfer policies, potential future upgrades, the complexity of the card, and affordability.
To get you started, here are the current average APRs for each credit card type you can use as a benchmark when assessing your options:
|Standard credit cards||24.47%|
|Secured credit cards||21.89%|
|Rewards credit cards||19.28%|
|Business credit cards||17.30%|
|Student credit cards||19.12%|
|Balance transfer cards||18.09%|
|0% introductory APR cards||18.07%|
Data Source: Federal Reserve's Consumer Credit G.19 Report
- Apply for the card with the highest overall value
When you've picked the clear winner, make sure you gather the necessary paperwork and meet all requirements. Having everything ready upfront can help speed up the process.
If you want some extra help narrowing down your choices, consider using a tool like BankRate's Card Match or Experian's CreditMatch. These tools will help determine which cards you pre-qualify for so that you're not wasting time trying to apply for unsuitable options.
Faced with such a wide selection of credit card products, it can be tough knowing which to choose. To ensure you don't get sucked into a black hole of debt by picking the wrong one, assess your goals and financial priorities. Keep in mind that every hard inquiry created by a new credit card application can ding your score by five points, so consider building your score first and spacing out your credit inquiries.
Keep reading: What You Must Know About the Land's End Credit Card
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.