When used correctly, credit cards are an essential tool in building your financial health. Through responsible credit card use, you can improve your credit score, save money, and effectively manage your finances.
However, not all credit cards are created equal. Depending on your personal finances and particular circumstances, some cards might be much more advantageous to you than others.
If you’re shopping around for a new card, it’s easy to get overwhelmed by the options. It’s worth doing some research ahead of time to make sure you get a card that best supports your financial needs.
For that reason, we’ve put together a guide about the different types of credit cards. Let’s take a look at the various credit card options that are available today.
What Is the Difference Between a Secured and an Unsecured Credit Card?
Before jumping into the many different types of credit cards, let’s take a minute to understand the difference between secured and unsecured credit. While unsecured credit cards are more common, there are circumstances where a secured credit card might be the right choice for you.
Unsecured Credit Cards
By far, the most common type of credit cards are unsecured credit cards. This means that you aren’t required to deposit cash as collateral for the line of credit being extended to you.
These cards are a reasonable choice for most consumers. They can help you build credit and some cards can earn you cashback or rewards when you use them.
Secured Credit Cards
In general, you will be required to put down a deposit in order to secure your line of credit when you get a secured credit card. In these instances, your credit line is typically equal to the amount of money you deposit.
Basically, a secured card works like a debit card except that it helps you to build your credit history.
While having to deposit the cash ahead of time might seem contradictory to the idea of having a credit card, secured cards can make sense for some consumers. For example, if you are looking to establish credit or rebuild bad credit, a secured card might be a good choice.
Credit Cards That Save on Interest
The interest rate of a credit card isn’t of much concern for people who pay their credit card bills in full on the due date every month. However, if you’re making the minimum payments or partial payments when it comes time to pay the bills, saving money on interest can have a major impact on your overall financial health and wellbeing.
0% and Low-Interest Cards
Finding a low-interest or 0% interest card can help you save a lot of money in the long run if you carry a balance on your card. If you are looking to finance a big purchase, a number of credit cards offer an introductory 0% APR for a period of time. This means that so long as you pay off the balance at the end of that introductory period, you don’t have to pay any interest on the purchases you make during that time.
For example, one popular card with this type of offer is the Chase Slate credit card. With this card, the introductory APR is 0% for fifteen months on both balance transfers and purchases.
The catch here is that these cards are usually only available to people who have credit that is good or excellent.
Balance Transfer Cards
Balance transfer cards are another way to save on interest. Through the use of a balance transfer card, you can transfer high-interest debt to a card that has a lower interest rate. Many balance transfer cards offer an introductory period with 0% APR, allowing you some breathing room while you work to pay off your existing debt without racking up more interest in the meantime.
In order to qualify for balance transfer cards, you typically need good credit. While the definition of “good credit” isn’t set in stone due to the fact that there are two primary credit scoring models, 700 or above is typically considered a good score.
Credit Cards That Earn Rewards
If you aren’t particularly concerned with getting a credit card that helps you save on interest, you might be in the market for one of the best reward credit cards.
Every time you make a purchase with a rewards card, you get a little something back. While there are many different kinds of rewards credit cards, there are three different general structures for this type of card. These are cashback, miles, or points.
For example, a travel rewards card might give you a certain number of points for each dollar you spend. These points can then be used to help pay for travel expenses like hotels or flights.
If you’re a travel junkie, check out your best credit card options here.
When it comes to a cashback card, in some instances you will get a certain percentage of the money you spend back in cash. Other cashback cards use a points system that can either be converted into a dollar value or used in other ways.
Rewards credit cards that operate on a miles structure offer airline miles as a reward for making purchases. As you build up miles over time, your travels around the world can be funded by things you’ve bought in the past.
(Are you wondering how to use your airline miles in the time of the coronavirus? If so, check out this article.)
In general, good to excellent credit is required for rewards cards. That being said, there are some rewards credit cards that are available for people that have less than stellar credit. It’s worth understanding that these cards typically charge high rates of interest, which means that the value of the rewards can easily be offset by the interest if you carry a balance.
Credit Cards That Build Credit
If you don’t have amazing credit, it might be a good idea to work to improve your credit before trying to score one of the best reward credit cards or a card with a low-interest rate. This also goes for people who don’t have a credit history yet.
In this instance, a secured credit card can be a good way to build and improve your credit.
By taking the time to improve your credit, you will have more credit card options available to you in the future. Even if you aren’t interested in applying for credit cards down the road, your credit health can impact multiple areas of your life. This includes your ability to take out loans, rent or buy a house, and even future job opportunities.
Secured credit cards typically require a deposit, which lessens the risk to the lender and makes them much easier to obtain. If your goal at this point is to improve your credit so more lending options are available to you in the future, responsible use of a secured card can be one of the easiest and quickest ways to climb out of the “bad” credit score range.
The Different Types of Credit Cards: Which One Is Right For You?
When you begin researching what kind of credit cards you can apply for, it’s easy to feel blown over by the sheer number of options. However, when you break it down into the different types of credit cards, it becomes simpler to hone in on the card that best serves your financial health.
No matter what card you are applying for, it’s worth reading the fine print to understand what exactly you are signing up for. You will want to understand how the points, miles, or cash back systems work as well as any other fees you might be responsible for, such as an annual fee.
If you’re looking for more resources to help you choose the right credit card, you can find more articles here.