10 Types of Credit Cards and How to Use Them? (Updated 2022)
Different types of credit cards are available from dozens of credit or debit card providers. The first step in selecting your initial credit card is to determine the sort of card you require depending on your requirements. There are many types of credit cards available, ranging from the basic no-frills card (dubbed “plain-vanilla”) to the premium card with several advantages and privileges. These Credit Card Types are listed below.
Types of credit cards: Which Fits Your Needs?
- Standard “Plain-Vanilla” Credit Cards
Because they have no frills or perks, standard credit cards were known as “plain-vanilla” credit and debit cards. They’re also rather simple to comprehend. If you want a simple credit card and aren’t interested in collecting points, this is the card for you.
You can carry a revolving debt on a normal credit card up to a specific credit limit. When you make a purchase, credit is depleted, and once you’ve completed the payment, new credit is made available. At the end of every month, a finance charge is added to outstanding accounts. To avoid late-payment penalties, credit cards include a minimum monthly payment that must be made by a specific due date.
- Balance Transfer Credit Cards
Whereas many credit cards allow you to transfer debts, a balance transfer card gives you a reduced introductory rate on cash advances for a set amount of time. A balance transfer is a fantastic strategy to save money on an existing card with a high-interest rate balance.
Interest rates on balance transfers vary — but can be as low as 0%, but they normally come with caveats, such as a charge for each transfer. The more appealing the card is, the lower the promotion rate (and the longer the promotional time). However, you’ll almost always need strong credit to get approved.
- Reward-based Credit Cards
Cashback, points, and rewards points cards are the three most common types of rewards cards. The reward-based card is one of the types of Chase credit cards. Some individuals prefer cash back rewards because they are more flexible, while others prefer points that may be exchanged for cash or even other products. Because of the chance to earn free trips, hotel stays, and other travel incentives, regular travelers continue to embrace travel rewards cards.
- Student Credit Cards
Student cards are developed particularly for college students, with the idea that these young adults frequently have no or little credit history. A student credit card might be easier to get accepted for than another sort of credit card on the first credit card applicant.
Additional benefits like incentives or low interest on debt transfers may be available on student credit cards, but they aren’t the most crucial aspects for students shopping with their first payment method. To be authorized for a college credit card, students must be enrolled at a recognized four-year university.
- Charge Cards
Charge cards have no spending limits and must be fully reimbursed just at end of every month. 4 Because the debt must be paid in whole, charge cards usually do not carry a financing charge or a minimum payment. Based on your card agreement, late payments may result in a fee, charge limits, or card termination. To qualify for just a charge card, you usually have to have a strong credit history.
- Secured Credit Cards
Secured credit cards are a good alternative for folks who’ve never had a credit history or whose credit has been ruined. A secured card requires a deposit amount. 6 A secured credit card’s credit limit is normally equal to the amount of the card’s deposit,7 although it might be higher in specific instances, such as a substantial default, such as missing a mortgage payment. It’s worth remembering that you’ll still have to pay off your protected credit card debt regularly.
- Subprime Credit Cards
Subprime credit cards are among the most dangerous types of credit cards. These credit cards are designed for those with poor credit histories, and they usually come with high-interest fees. Even for people with weak credit, acceptance is frequently swift, but the conditions are often complicated. The federal government sets limits on the fees that subprime credit card companies can charge,9 but card issuers frequently hunt for loopholes and methods to get around these restrictions.
Despite their unattractiveness, some customers apply for subprime credit cards because they are unable to obtain credit elsewhere. This is an instance in which you must proceed around your own risk.
- Prepaid Cards
Before using a prepaid card, the cardholder must first load money into the card. Purchases are deducted from the card’s available balance. Until fresh money is placed onto the card, the project budget does not renew.
So because the balance is removed from the investment you’ve made, there are no financing charges or minimum monthly payments with prepaid cards. These cards aren’t credit cards, so they won’t help you restore your credit score in any way. Prepaid cards are comparable to debit cards, except that they are not linked to a bank account. Many individuals utilize them as a means of staying on budget.
- Limited Purpose Cards
Credit cards with a limited purpose should only be used in specified places. Limited-purpose cards are similar to credit cards in that they require a minimum monthly payment and include a financing fee. Limited-purpose credit cards are shop credit cards and petrol credit cards, for example.
- Credit Cards for Businesses
Commercial credit cards are created with the sole purpose of being used for business purposes. They make it simple for company owners to keep business and personal dealings separate.
Your credit record is evaluated even for a corporate credit card since the credit card companies still have to hold a person liable against credit card debt.
Before finding the answer that how to choose the right type of credit card?, reviewed the below-enlisted Pros and cons of different types of credit cards.
Pros of Different types of credit cards
- Credit cards are easier to carry and use than card purchases and prepaid cards since they are accepted in more places.
- Safer than cash — simply call your bank to deactivate your card if it is lost or stolen. You’re much more likely to get your money back if it’s stolen and spent fraudulently.
- It might be a less expensive option to borrow because you won’t have to pay interest if you pay off the outstanding debt in full each month. Some credit cards, on the other hand, provide an initial interest-free term on purchases.
Cons of credit cards
- High-interest repayments – if don’t pay off your amount at the end of every month (and you aren’t on a 0% agreement), you’ll have to pay interest on the money you owe. This can be a much larger sum than other types of borrowing.
- Can harm your credit score – if you skip a payment or exceed your credit limit, your credit score will be badly harmed. This may have an impact on your future capacity to borrow money.
- Additional costs – in addition to the interest, you may be charged additional fees or penalties if you exceed your credit limit or miss a payment. Withdrawing cash normally has a higher interest rate, and certain credit cards may additionally levy a monthly or yearly fee.
- Deposits and pre-authorizations might reduce your credit limit — some businesses, such as hotels or vehicle rental companies, may take a pre-authorization with your credit card. If you don’t pay for items like the mini-bar, you’ll be charged this fee. They’ll put a hold on a portion of your available credit and you won’t be able to use that line of debt while it’s in place. Even if the hold is lifted, it may take a few days for your credit limit to return to normal.
- Can be costly to use internationally, depending on the card. Some are geared for travelers, while others are more costly in terms of fees and other costs. Whether you utilize the card to pay or not will determine this.
Use caution while using your different types of credit cards. Charges can be incurred in a variety of ways.
- Keep an eye on interest rates.
- You’ll be charged interest on your entire credit card amount if you don’t pay it off in full just at end of the month. Unless you’re in the middle of a 0% initial rate.
- When you initially obtain the card, you could get an initial fee as a new client. However, double-check if this applies to purchases, balance transfers, or both. Keep in mind that it does not cover cash withdrawals.
- Also, find out what the rate of interest will be after the promotional period ends and, if possible, repay in whole before then.
Fees for moving funds to a different credit card
- You’ll normally be charged fees if you transfer a balance from some other card, which is usually approximately 2-4 percent of the amount moved.
- You’ll have to decide if it’s worth it to pay this to get a lower rate just on the card you’re moving to.
- Late payments hurt your credit score.
- You’ll be charged a late payment fee if you pay your bill after the monthly deadline on your statement.
- Any introductory rate of 0% or lower might potentially be revoked. Furthermore, other organizations will be able to see that you were late on a payment that is part of your credit history.
- This may have a detrimental influence on future credit card applications, such as mortgage or vehicle loan applications.
What are the 4 types of credit cards?
The basic four types of credit cards network include; Visa card, American Express, MasterCard, and Discover. Every type of credit cards credit has its benefit but to answer the question which of the following types of credits would best describe credit cards? In our suggestions, the best credit card is the one that gives maximum benefits in a limited amount.
You Must Read: Is 750 Credit Score Considered Good? & How Long to Keep Credit Card Statements