Credit Card Types – Which Is Right for You?
Point of Interest
With so many types of credit cards available, it can be difficult to choose the best for your financial needs. We’ve compiled everything you need to know to help you choose which type of credit card is best suited for your needs.
It can take time to choose the right credit card, but it helps to understand your options among the bevy of different types of credit cards. Credit cards aren’t one-size-fits-all financial products. Your credit score, financial goals and spending habits have a lot to do with which types of credit cards may best serve your needs. Carefully choosing will help you keep your revolving accounts streamlined and your wallet uncluttered.
You have many options, but most credit cards fit into a few standard categories, which we will overview below:
- Intro/Starter: Best for those without established credit who want a simple and straightforward first credit card. A good card for those with no or low credit.
- Student: Best for students with decent credit who show interest in using one card for everyday purchases. These cards may feature special rewards for students, like cash back for getting good grades.
- Secured cards: Best for those who want to build or repair their credit and who can’t get approved for an unsecured credit card. You may need to put down a deposit to act as your credit limit.
- Balance transfer: Best for those with credit card debt who want to pay it off while saving money on fees and interest charges. These often come with great intro APR offers to help you save money.
- Cash back: Best for people with good or excellent credit who want cashback rewards on everyday spending. You’ll earn cash back at a flat or tiered rate.
- 0% APR: Best for those with great credit who plan to make a large purchase and would like a few months to pay it off without incurring interest charges. If you want to transfer a balance from a high-interest credit card, be sure to check the rules about interest on balance transfers before submitting your application.
- Rewards cards: Best for those who know they’ll use travel or dining rewards and would also like access to the perks and extras associated with many rewards cards. You can also earn points for purchases in specific categories.
- Business credit cards: Best for those who have their own business and want to keep their company’s purchases separate from personal accounts. Also great for people whose employers offer reimbursement for business-related charges.
Credit card issuers and networks
A credit card issuer is a bank providing the money credit card issuers lend to cardholders. Credit card networks, like Visa, Discover, American Express and Mastercard, process individual transactions when a credit card user pays for products or services with their card.
Credit card issuers are in charge of deciding who gets approved or denied for a card. The issuers set up the rewards programs associated with the type of card, collect payments from the credit card holder and offer customer service when the cardholder needs assistance.
Whether you get approved for a credit card depends on your credit score and credit history. Your credit score offers a quick look at your overall financial habits, as reported by your current accounts. Having a higher score increases your chances of getting approved.
Credit card issuers also look at your credit reports to see if you have late payments or if you’ve been applying for a lot of new credit cards recently. Even if you make every payment on time, if your current cards are maxed out or close to their limit, you could get denied for new credit.
Other red flags for credit card issuers include short credit history or a low number of open accounts. If you haven’t demonstrated responsible use of credit, some issuers may not want to take a chance on granting you access to the company’s credit card products.
Factors to determine the best card for you
When you use a credit card suited for your needs, you are more likely to enjoy the perks and reach your financial goals. There are a few factors that you should consider when evaluating your credit card options:
- Credit score: If your credit score is above the mid-600s, you should be able to qualify for many credit cards. Lower credit scores, especially combined with a history of late payments or accounts in default, could mean you’ll need to start with a secured card to help repair your credit history.
- Income level: Some high reward credit cards require you to have a certain yearly income for approval. If you want a credit card with lucrative rewards and valuable perks, you’ll need great credit, longer credit history and yearly income.
- Purchasing needs: If you want a credit card for daily purchases and you plan to pay off the balance every month, you may be able to tolerate a lower credit limit in exchange for great rewards. If you plan to make occasional large purchases, a card with low-interest rates and a higher limit may be a better fit.
As you evaluate the types of credit cards as each relates to your needs, watch out for interest rates and annual fees. Some high profile cards with great rewards programs charge hefty fees. For those who put the cards to good use, those fees are easily offset by rewards.
The bottom line
No matter your financial situation or credit card needs, you shouldn’t have to settle for a card that doesn’t meet your needs.
If you have credit challenges, you can use some types of credit cards, like secured cards, to establish a positive payment history and set yourself up for a better credit card. Finding the right credit card may take some time, but it’s well worth the effort to have a card fitting your lifestyle that melds seamlessly with the other financial products in your money toolbox.