In a world where a dizzying array of credit card types are marketed to consumers, it’s easy to become overwhelmed by the sheer number of choices. The thing is, you don’t have to learn everything about all credit cards. All you need to do is figure out which type of credit card would work for your needs, then focus your mental energy on those.
10 different credit card types
How do you know which type of credit card would serve you best? Consider the different types of credit cards outlined below and how each type of card might work for your spending and your financial goals.
Cash back credit cards
Cash back credit cards make it easy for consumers to earn cash back or statement credits on their spending, although how rewards are doled out varies from card to card. Some options in this niche offer a flat rate of rewards while others offer bonus points in certain categories like dining or travel. Some even offer bonus rewards in categories that change each quarter, as well as a flat rate of rewards on all non-bonus purchases.
Many cash back credit cards come with no annual fee as well, although some with more generous bonus offers and rewards schemes charge annual fees on the modest side, usually under $100.
Rewards credit cards
Rewards credit cards can come in different flavors, and they even include cash back credit cards. Either way, rewards credit cards typically give you points based on a percentage of your spending, and some even offer bonus points in popular categories like groceries, gas and dining out.
Rewards credit cards also tend to offer at least a few different ways to redeem your points, whether that includes the option for statement credits, gift cards or merchandise.
Travel credit cards
Travel credit cards offer consumers the chance to earn rewards that are geared specifically to travel, whether that means earning flexible travel credit you can use toward any travel purchase, or even points you can transfer to airline or hotel programs. Some travel credit cards also let you earn points within a specific program, such as a frequent flyer program or hotel loyalty program.
If you travel often, you can also keep your eye out for luxury travel credit cards that offer perks like airport lounge access, annual travel credits and credits for Global Entry or TSA Precheck.
Balance transfer credit cards
Consumers who have high-interest credit card debt often turn to balance transfer credit cards. This type of credit card lets you secure an introductory zero percent APR for a period typically between 15 and 21 months, although most cards require you to pay an upfront balance transfer fee of 3 or 5 percent.
Still, even after taking the balance transfer fee into account, you could save a significant sum of money on interest during your card’s introductory APR offer.
0% APR credit cards and low interest credit cards
You’ll also find an array of credit cards that offer zero percent APR on purchases for a limited time, usually up to 18 months. Credit cards in this niche can be a boon if you need to make a large purchase and want to pay it back over time without interest. On the same token, you’ll also find low interest credit cards that offer lower than average rates overall, and not just during an introductory offer phase.
Business credit cards
Business credit cards let consumers keep their personal and business expenses separate while they earn rewards on all their business spending. Interestingly enough, business credit cards can also be cash back credit cards, general rewards credit cards, travel credit cards or even secured credit cards. You do need to have a business or income-producing activity to qualify for a business credit card.
Student credit cards
Student credit cards are “starter credit cards” of sorts that are specifically geared to young people with a limited credit history. In other words, application requirements aren’t as stringent, so it’s easier to get approved. Most student credit cards don’t charge an annual fee and many offer bonus perks for good grades as well as rewards for each dollar you spend.
Secured credit cards
Most credit cards are unsecured, meaning you don’t have to put down any collateral. With secured credit cards, on the other hand, you’re required to put down a cash deposit in order to secure a small line of credit, usually for a similar amount. For example, you might sign up for a secured credit card and put down a $500 initial deposit in order to receive a $500 line of credit.
While putting down collateral may not seem ideal, secured credit cards are the easiest type of credit card to get approved for, so they are often used by consumers who need help building credit from scratch or repairing their credit after financial mistakes.
Store branded credit cards
Store branded credit cards are offered through retail stores as a way to let consumers charge their purchases and pay them off over time. Store credit cards are generally only able to be used within the specific store that offers them, although some store credit cards can be used within a specific family of stores.
Co-branded credit cards
Co-branded credit cards are store or brand credit cards that are offered through traditional card issuers like Chase, Citi or American Express. These can include airline credit cards that let you earn miles within a specific frequent flyer program, or hotel credit cards that let you earn points within a hotel loyalty program. Some co-branded credit cards also partner with retail stores, although you can typically use them for non-store purchases as well.
How to choose the right type of credit card
Check your credit score
First, you’ll want to check your credit score to see where you stand. Excellent credit will pave the way to qualifying for any credit card you want, including the top travel and rewards credit cards. If your credit score is just “fair,” or you have particularly poor credit, on the other hand, you’ll be limited in the number of cards you can qualify for and may need to start with a secured credit card.
Write down your goals
Figure out what you hope to accomplish with a new credit card. Do you need to build up your credit score or do you hope to secure a lower interest rate? Perhaps you travel all the time and want to pick up a credit card with exceptional travel perks. There’s no right or wrong goal to pursue with different credit cards, but knowing what you hope to gain from your new card can help you narrow down the best options for you.
Assess your debt
Do you have a lot of high-interest credit card debt or debt from other loans? If so, you may want to consider a balance transfer credit card that lets you consolidate your debts during an introductory APR period. If you don’t have any debt and you plan to stay that way, on the other hand, you’ll want to focus on other credit card benefits, like insurance or rewards.
Compare rewards programs
If your goal is earning rewards, make sure you know which credit cards deliver your desired rewards. That could include cash back, flexible travel rewards or credit card points you can transfer to airlines and hotels. Either way, make sure you pick a credit card that lets you rack up the type of rewards you want the most.
Look for fees and other carrying costs
Finally, make sure to compare credit card fees and long-term carrying costs. Not only should you consider your credit card’s interest rate, but you should watch out for annual fees, late fees, application fees, over-the-limit fees and any other charges you may need to pay.