Credit Card Education Guide

Types of Credit Cards

There is a credit card for everyone, but choosing the right card can only be done if you have decided why you need a credit card in the first place. There are advantages and disadvantages to every credit card and exploring the different types of cards is an important factor in getting the most out of your new card.

The type of credit card offer is closely associated with your credit rating. The credit rating is based on the probability that a debt will be repaid in a timely manner. A poor credit rating means that the card issuer is less likely to receive the loan payment and does not want to include any additional benefits that could end up being costly for the card issuer.

Rewards Credit Cards

This type of card allows you to earn rewards on any purchase. Many credit cards are designed to offer additional rewards on certain types of purchases such as travel, home, gas, or hotel expenses. The typical reward is 1% or 1 point for every dollar spent, but special category purchases can qualify for as much as 5% cash back, which means finding a card that is tailored towards your interests may result in a much higher reward balance at the end of the year.

People that consistently pay off their balance in full each month can earn these rewards without paying anything in finance charges. Be aware that rewards credit cards may have higher interest rates and people that do not have the financial discipline can end up paying more for their rewards than what they are worth.

Secured Credit Cards

This card is intended for people with bad credit or a limited credit history that has the ability to pay in advance and is looking to build or reestablish a good credit history. You are required to make a security deposit into a designated bank account, which is usually a minimum of $300 that now becomes your credit line. It is easy to get approved for a secured credit card, as there is no credit risk to the lender due to the deposit. A secured credit card often comes with an annual fee, but it is a small price to pay for a chance to obtain a good credit history.

Secured credit cards also carry a higher than normal interest rate and people with a fair credit history or better should always apply for unsecured credit cards, which also builds your credit history and may offer a lower interest rate without the annual fee.

Prepaid Credit Cards

There are two main benefits in carrying a prepaid credit card in your wallet. First of all it can be used as a convenient payment method anywhere credit cards are accepted. There is also no risk of getting into uncontrolled debt, because you can never spend more than the balance that you have already prepaid into the account. The disadvantage is that prepaid credit cards are not reported to the major credit bureaus and therefore you will not be building any credit history with this type of card.

Student Credit Cards

It is difficult to get approval for the first credit card, but college students have the advantage of being able to apply for student credit cards. Even with little or no credit there is a good chance of your credit card application being approved. Credit card issuers are wiling to take a chance on a college student in hopes of gaining a loyal customer in the future.

The initial credit limit on a student credit card will be relatively low. This enables the first time credit card holder to establish a monthly payment schedule and improve financial management without the risk of getting into a credit card debt spiral.

Business Credit Cards

These credit cards are for small business owners or corporate executives. A business credit card gives you the ability to separate personal and business expenses efficiently. You also receive special features such as detailed expense reports and additional cards for employees.