The Top 5 Credit Card Types You Should Know About
There are many different credit card types available on the market today. If you’re looking for a new credit card, it can be tough to decide which one is right for you. In this blog post, we will discuss the five most popular credit card types and give examples of each. We will also talk about the benefits and drawbacks of each type of credit card. So, whether you’re looking for a rewards credit card or a low-interest rate credit card, we have you covered!
If you’re brand new to Credit Cards consider checking out our Intro to Credit Card Basics post first!
Cashback Credit Cards
Cashback credit cards are a great way to earn rewards on your everyday spending. They typically offer a simple structure, such as 1.5% cashback on all purchases you make on the card. This means that you can earn cashback on everything from groceries and gas to your monthly rent or mortgage payment. Cashback credit cards also usually have no annual fee, so you can earn rewards without having to pay any extra fees, although recently some have begun charging up to a $95 annual fee. So if you’re looking for a simple and straightforward way to earn cash rewards, a cashback credit card may be the right choice for you.
Recent Developments in Cash Back Cards
Over the past few years, there has been somewhat of a race to offer the most exciting headline cashback rate. This has led credit cards companies to innovate new ways to help you save money off your credit card bill. They do this typically by offering higher cashback amounts on certain categories, like gas, groceries, or restaurants. Some companies, like Discover Credit Cards, will rotate these bonus categories at some periodicity, typically monthly or quarterly, so you have to pay attention to what the current category is to maximize your benefit. If you’re clever you can plan ahead a bit and make sure to spend money you would have spent anyway at some time on the card that has the highest benefit that month or quarter. Often, though, these higher rates, which can be as much as 5% cashback, are capped at around $1,500 of spend per quarter. That means that if you have a 2% cash back card, but maximize spending in the 5% category, you’re additional benefit is only $45 extra dollars ($75 vs. $30). That’s not nothing, but it’s also not something to spend a ton of time creating excel spreadsheets and tracking closely to earn.
This is easily my favorite of the five major credit card types and my current favorite is Fidelity’s 2% Cash Back Rewards Visa, which gives you 2% cash back on all purchases. It requires having a brokerage account with Fidelity.
Rewards Credit Card
Rewards credit cards are the second major type of credit card type. Instead of cash back, they give you points for spending which you can redeem for things like hotel stays, flights, or other products and services. Rewards credit cards usually have an annual fee, but the rewards can be worth it if you spend a lot on your card. Rewards credit cards typically have a higher interest rate than other types of credit cards, so it’s important to pay off your balance each month to avoid costly interest charges. When used responsibly, rewards credit cards can be a great way to save money on your everyday purchases.
Potential drawbacks of Rewards Cards
I’m less enthusiastic about rewards credit cards because of how easily the point values can be manipulated and how hard they are to track. There are numerous websites that can help you do this, however. Most of the time points’ cash values hover around 1%. If you’re willing to put in a little time and effort you can get more than that out of it, though.
My current favorite Rewards Credit Card is the Chase Sapphire Preferred card. While it does have a $95 annual fee, it also features a points cash value of approximately 5% if you book travel through their Chase Ultimate Rewards portal. I found the portal to be relatively easy to use and the customer service friendly when I recently booked a trip to Maui using points on this card.
Secured Credit Card
Secured credit cards are the third major type of credit card. They are a great place to start if you have low or no credit card history or bad credit. Secured credit cards typically have a very low limit, like under $2,000, which has to be secured with a security deposit. Secured credit cards require you to put down a deposit, which is usually equal to your credit limit. Secured credit cards are reported to the credit bureaus just like unsecured credit cards, so they can help you build your credit if used responsibly. Paid-as-agreed payments are reported to the credit bureaus, which can help you build positive payment history and improve your credit scores over time. It’s important to keep in mind that secured credit cards typically have a higher interest rate than unsecured credit cards, so it’s important to pay off your balance each month to avoid costly interest charges.
My experience with Secured Cards
I got my first secured credit card when I was starting out with credit about five years ago. At the time, my credit limit was only $300 and I had to put down a $300 refundable security deposit. It was a horrible card with high fees and an annual percentage rate (APR) of almost 25%. Needless to say, I paid off my credit card balance in full every month. If you’re interested in getting a line of credit with a lower interest rate and can pledge a brokerage account as collateral check out our post on SBLOC Securities Backed Line of Credit: The Definitive Guide
Nowadays, there are much better secured credit card options available to start building credit history, like the Capital One Secured Mastercard. This card has no annual fee and includes automatic credit limit reviews a great way to start if you have a bad credit history. If you continuously pay on time you can also be upgraded to not having a deposit required and/or to one of their unsecured credit cards. Make sure to pay in full each month though – the interest rate is a punishing 27%! Whoa – that is high motivation to pay your credit card bill each month.
Business Credit Card
Business cards are a type of credit card designed specifically for business expenses. They are critical for segregating business expenses onto a separate credit card. Business credit cards typically offer a higher limit than personal credit cards and may come with additional perks, such as rewards points or cash back on business-related purchases, but will need to build a credit history, just like personal credit cards. Business credit cards can be a valuable tool for managing business finances, but it’s important to understand the terms and conditions before signing up for one. Also, most business credit cards require a personal guarantee, which means you’re personally responsible for repaying the debt if your business can’t make the payments. Business credit cards can be a great way to help manage your business.
By the time I started my small business I had personal credit cards with a total credit line of over $100,000. So I was pretty surprised when I applied for a Busines AMEX credit card and they issued me a credit limit of $2,000, despite my personal guarantee. One of my many horrible experiences with my American Express credit card! You might expect the same, though, to only get a small credit limit to start, if you’re just starting a small business that itself has no credit history. These are typically an unsecured credit card and most have no annual fee or a minimal one such as $95. Overall, having a business credit card is a critical way to keep business expenses separate from personal and is a must-have credit card.
Balance Transfer Credit Cards (often also low or zero interest credit cards)
Balance Transfer Credit Cards are a great way to consolidate your debts into one place and save on interest. When you transfer your balances to a Balance Transfer Credit Card, you’ll typically get a lower interest rate for a set period of time. This can help you pay off your debt faster and save money on interest payments. Balance Transfer Credit Cards also offer other perks, like rewards points, cash back, and 0% intro APR periods. So if you’re looking to consolidate your debt and save money, a balance transfer cards could be the right choice for you.
Bonus: Other Credit Card Types
There are many other credit cards out there like student credit cards and store credit cards. These credit cards may have different terms and conditions, so it’s important to read the fine print before signing up. Many of them are just variations of the credit card companies’ “main” card. For example, store credit cards often have very high interest rates, so it’s important to only use them for emergencies and to pay off the balance in full each month. A student credit card can be a great way to start to build credit, though
There are many different types of credit cards available today, from secured cards to balance transfer cards, to student credit cards, so it’s important to understand which type of credit card is best for you. By understanding the different credit card types available, you can make a more informed decision about which credit card is right for you. So be sure to do your research before applying for any credit card!