Credit cards are credit cards, right? Not exactly. That’s why so many consumers considering getting a credit card experience shock and confusion. Credit cards come in a variety of shapes and forms, which makes it difficult to weigh one versus another.
The following hints will help you make smart, personalized credit card choices. As you examine each credit card type, ask yourself whether or not it makes sense for your financial goals.
1. Standard Consumer Credit Cards
Basic credit cards go by many names. Some call them “vanilla” cards (not to be confused with the Vanilla gift card from VISA.) Others refer to them as consumer or general cards. Either way, terms are fairly straightforward, they don’t offer perks or benefits, and they might or might not charge fees.
Ordinary credit card issuers run a hard inquiry on your credit report, which will ding the report by a few points. Based on their findings, they will accept or reject your application for credit. If you’re accepted, you’ll be allowed a maximum spending limit. This means the issuer will give you the opportunity to borrow up to that amount.
Interest rates on basic credit cards can vary and will go up if you miss one or more monthly payments. Be sure to pay more than the minimum due to whittle down your balance fast.
2. Secured Credit Cards
What if you have poor or fair credit and can’t get a standard consumer credit card? That’s where a secured credit card comes into the picture. These types of credit cards do not require a credit inquiry because they are secured against a cash deposit. Consequently, a much larger percentage of people can be approved for a secured credit card.
Here’s how a secured card works: You give the card issuer cash. Let’s say the deposit is $1,000. The issuer then gives you the ability to use your card to borrow up to that amount. As long as you make your monthly payments on time, your credit history should start to improve.
Having a secured credit card provides you with the freedom to use credit even if your credit score is low. It also is a good gateway to getting accepted for unsecured cards in the future.
3. Balance Transfer Cards
You have a credit card already, but the balance is very high. Plus, you’re paying a lot in interest as you try to bring down the balance. To save money, consider switching your balance to a balance transfer card with a low introductory rate.
Of course, the introductory rate won’t last forever. Usually, it’s locked in for a specific amount of months, such as 0% for a year. You’ll also shell out a balance transfer fee, which can be as high as 5% of the transfer amount. Still, balance transfer cards can save you money in the long run by lowering the interest you pay.
One note: You’ll need good credit to obtain a balance transfer credit card. Additionally, your credit report will be knocked down temporarily. Still, these cards can be phenomenal money savers.
4. Rewards-Based Cards
Everyone likes getting rewarded, which is why credit cards that offer points, cash back, gas rewards, and airline miles are so attractive. In fact, it’s hard to watch a YouTube or television show without seeing a reward card ad.
Which type of reward do you need, though? Getting tons of airline miles might sound exciting, but it won’t help if you don’t travel much. Additionally, airline miles often require that you book directly with specific airlines. If the airline isn’t one that you prefer, you won’t be happy.
Study all the rewards-based credit cards on the market carefully before picking one. Definitely read the fine print, as sometimes points and rewards can run out rapidly. Your job is to find the card that will work for you, not be a burden.
5. College Student Credit Cards
With all the hubbub over student debt, many college students end up using cash only during their first years. However, without credit cards, they can’t build up a credit report. And credit reports are useful for later in young adult life.
This is where college-geared credit cards come into the picture. They’re meant for students actively enrolled in a higher education institute. They’re also designed to bump out a flagging or non-existent credit history. Ordinarily, the maximum spending level on this kind of card is low. Still, it’s good to have for emergencies.
If you’re a parent of a young person, you may want to assist them in getting a student credit card. It’s good for better financial literacy, which can be lacking among some populations. The sooner a college student learns how to successfully manage money, the better it is for them.
6. Business Credit Cards
Many credit card issues work primarily with businesses. A business credit card works on the same revolving credit principle as a basic consumer card. However, a big difference between the two involves credit scores and histories. Many business cards are issued after checking both the business’s and owner’s credit report. Again, this is a hard inquiry.
Another difference between business and consumer credit cards is that business versions tend to have higher limits. They may even require significant annual fees in exchange for corporate advantages like extensive insurance coverage.
Entrepreneurs appreciate using business credit cards because it’s simpler to divide personal and company purchases. And the organization can issue cards to team members as authorized users, streamlining procurement.
Traversing the ins and outs of credit cards will always be head-scratching for most consumers. Nonetheless, having a stronger basic understanding of how credit cards work will be a huge asset for you. Besides, you’re always in luck because even if you have bad or no credit, you aren’t out of choices.