Hundreds of banks and credit unions exist and they offer a variety of credit cards with different features and terms. The terms usually vary depending on the type of user they credit card is targeted to.
Since credit card users have diverse spending habits and belong to different income groups, their credibility in terms of repayment is also dissimilar. For this purpose, certain credit scores are assigned to users, which determine the person’s eligibility for different credit card types.
Users with the highest credit score are eligible for the best credit cards that offer multiple benefits and rewards.
Let’s take a look at the different types of credit cards and hopefully help you decide which the right one for you is:
Cash Back Credit Card
Cash back credit cards reward you cash for making purchases. The higher the purchase amount, the bigger the amount of cash reward you receive.
For instance, many cash back cards offer 1% of the total purchase value, excluding interest and service charges. Others reward a higher percentage for specific type of purchases or for purchases from certain brands.
Some credit card companies also have different cash back rates for different categories of purchase such as retail, gas, grocery or travel.
Since a cash back credit card is costly to the card issuer, some credit card companies charge an annual fee around $50 to $100.
To find out which cash back credit card is right for you, make sure you are aware of all the details such as the amount of cash backs, how they apply to the credit card balance and information pertaining to redemption of the cash.
If you pay off your monthly balances promptly, this type of credit card can earn you considerable amount of cash.
Rewards Credit Card
As the name suggests, a reward credit card rewards you for using the card for making payments, regardless of whether you pay online or physically at a retail outlet. Based on how much you spend every month, it gives you points, cash or miles.
The points can be redeemed to gain multiple benefits including cash back, gift cards, Apple purchases, travel miles and Amazon purchases. Certain eligible chase cards also allow you to redeem points to pay for benefits or experiences other than the regular ones we’ve mentioned.
The value of each point in a chase ultimate rewards card is around 1 to 1.5 cents which is determined by the type of card and benefit you’re to avail it for. For instance, when used for Amazon purchases, each point is only worth 0.8 cents.
The type of rewards offered depends on the type of rewards card issued. Let’s examine each type of reward card in a little more detail:
Travel and Accommodation Points Credit Card
This type of credit card is extremely popular among frequent travelers as it can help you save significant sums on airfare and accommodation. Points awarded are associated with travel and hotels.
If you choose a credit card that’s co-branded with a certain hotel chain, you’ll earn points on all purchases, but additional bonus points for every dollar spent on accommodation at that hotel. You can redeem the points for availing upgrades or free additional nights at the hotel chain.
On the other hand, certain travel and accommodation credit cards broadly allow you to redeem the points for multiple benefits including travel, accommodation at a range of hotel chains, admission to theme parks and so on.
However, the costs associated with this credit card is too high for companies, therefore, they usually charge a considerable annual fee. So if you don’t travel very often, the travel and accommodation points credit card is not worth it because you’d eventually be paying higher in annual fees than the value of travel benefits you redeem.
Retail Rewards Credit Card
Retail rewards credit cards award you points and other benefits for shopping at certain retailers, departmental stores or petrol stations. For every dollar spent, you earn a higher rate of points, which you can choose to redeem instantly at the store. Other benefits include exclusive discounts such as complementary gift wrapping and free delivery for online purchases.
For instance, American Express offers the David Jones American Express Platinum, which allows you to earn 4 points for every dollar spent at David Jones, 3 points per dollar spent at major supermarkets and petrol stations and 1 point per dollar spent on most other purchases. Some credit cards reward points for purchases at specific partners for example, using a Coles credit card would allow you to use your points for shopping at Coles.
Although you can earn points by spending wherever you want, you would only be able to redeem those points at stores your credit card is co-branded with. While the David Jones card also allows you to redeem your points for travelling with Qantas and other airlines, most co-branded credit cards don’t allow this. Hence, before choosing this credit card, see whether you frequently shop at the retailer and would like to remain loyal to it in the future.
Moreover, while retail rewards credit card allows you to earn points through any purchase, you’ll be earning significantly higher points by purchasing at the card-specific store. However, when using the points for further purchase, it’s important to note that they sometimes apply to specific products or for a limited time period. This way, these cards behave more like store cards than normal credit cards.
Gas Credit Card
Gas credit cards are either general or specific to certain suppliers. A general gas rebate card stays brand-neutral. It rewards you for buying gas or availing any service at any gas station. For instance, it may offer 1% cash back for any purchase but a 5% cash back at the time of gas purchase or auto maintenance at any station.
On the other hand, a gas credit card that’s specific to a certain company will offer benefits for purchasing at that specific gas company’s stations only. For example, it may offer 1-2% cash back for any purchase but a 5% cash back for purchasing gas at a particular gas company.
Airline Mile Credit Card
While certain reward credit cards offer air travel benefits along with other benefits like accommodation, certain reward cards are only specific to air travel payments. Such credit cards are called airline mile credit cards or frequent flier credit cards.
They reward customers with airline mile credits whenever they make payments anywhere. Like other rewards credit cards, you are issued points and are offered both general and brand-specific options for redemption of points.
For cards associated with specific airlines, you’ll earn points with general purchases as well as by travelling on that flight. Typical benefits of this card include earning double points for travelling through that particular flight, earning travel credits for that flight, no baggage fee, priority boarding and so on.
However, if you aren’t loyal to a particular airline, generic airline miles card is a better option for you. While you earn points for any purchases, you can redeem them for air travel through any airline, online flight bookings or travel agents. While this credit card offers you flexibility of redeeming your travel credits for any airline that suits your current trip, you won’t get double or extra points for travelling through certain airlines since it’s not co-branded.
When choosing an airline mile credit card, make sure you read the terms and conditions thoroughly and know the basic necessary information. It may include the annual fee, the number of miles you earn for each dollar spent, and the number of miles that makes you eligible for a free air ticket. Also, there might be a cap on the number of points that can be earned in a year and airline miles may expire after a certain time period. This type of card is suitable for frequent air travelers because the associated annual fee makes it impractical for people who don’t regularly travel by air. Thus, you must look for these aspects before making the decision.
Balance Transfer Credit Card
Balance transfer credit cards offer promotional financing for balance transfers. You’ll transfer your credit card debt from one card to another. While the outstanding balance will remain the same, you’ll be required to pay interest at a lower rate or in some cases 0% for a specific time period, usually up to 24 months. Hence, it allows you to repay your debt faster, stay ahead of your credit card payments and save money.
During the time you save on interest charges, you can pay off as much of the debt as possible and end the 0% period with a paid off card. Moreover, by using this card you can consolidate your monthly payments, and remove the burden of having to keep track of payments every month. For instance, if you transfer the balances from three cards to a single balance transfer card, you’ll have to care for payments for a single card, not three.
When choosing a balance transfer card, opt for the one that gives you more time to repay your debt amount with no interest charges. You should look for one which offers 0% introductory annual percentage rate (APR). Citi Simplicity, for example, offers 0% APR for balance transfers for a period of 21 months.
Moreover, find the balance transfer card that charges a low balance transfer fee. The fee normally lies between 3% and 5% of the total balance being transferred. These charges will be added to your outstanding balance and be entitled to interest payments.
It is advised to make a plan on how you are going to use this period to pay off the debts and make sure you pay off your outstanding balance in full before regular rates take effect. Setting up automatic payments would be useful to ensure timely payments. And more importantly, it’s better not to make any additional purchase with the card as you’ll be charged interest on each payment.
Low Interest Credit Card
Ideally, you should pay off your credit card balance each month. However, if you aren’t likely to pay off the bill timely, a low interest credit card might be what you need. Low interest credit cards simply offer lower rate of interest than average, normally 14% per annum or lesser. It is meant to save the borrowing expense for users in case they fail to pay off their balances in full every month.
To qualify for a low interest credit card, you’ll need to prove your creditability for repayment. To show that you’re a low risk to default, your credit score needs to be good enough. Check out the credit requirements of your preferred institution. If your credit score is low and you do have an idea that your application would be rejected, don’t apply for a low interest credit card. This is because the inquiry on your credit report would lower your score slightly.
While it’s obvious to compare the interest rates applicable for different cards, don’t miss out on other terms such as the annual fee. You may decide to choose a card that charges a slightly higher interest with no annual fee at all. But then make sure you don’t end up with huge balances at month end because if that’s the case, even low interest rates would account for huge monthly payments.
Another important thing to consider before choosing a low interest credit card is whether there’s an introductory rate. If there is one, check out how long does it last and what subsequent rate will be charged at the end of this period. Furthermore, a penalty APR is usually charged if you miss a payment. Therefore, find out what’s the penalty for non-payment.
Credit Cards for Bad Credit
Debts can worsen to a state when they’re considered bad. This may be a result of poor budgeting or an overlap between jobs. However, it doesn’t mean that people with bad credits are not eligible for any credit card at all.
Credit cards for bad credit are meant for those with poor credit history or who are trying to repair their credit. If you have a low credit score, you’ll have to explore options targeted to people with little or no credit history. Sometimes using introductory APRs or debt consolidation helps improve the credit situation. But if that’s unlikely to work for you, two types of credit cards are available to address the bad credit:
Subprime Credit Card
Subprime credit cards are issued to people with low credit scores or limited credit histories. The interest rates are higher, credits limits are low and the annual fee is higher than those charged to other credit card holders. But a subprime card doesn’t require a security deposit. For instance, the Milestone Gold Mastercard is available to people with bad credits and requires no security deposit, but has an annual fee of between $35 and $99.
AS a cardholder if you pay off your balances in full for several consecutive months, you might be granted credit increases without requiring any further deposits. However, you must go through all the terms before choosing a subprime card because interest rates are subject to dramatic increases in case of late payments or exceeding the credit limits.
Rates for subprime cards can go as high as 30%, therefore, users have to be extremely cautious in their use.
Secured Credit Card
If you’re struggling with debt payments, secured credit card is another solution to improve your credit. It requires a security deposit which serves as your credit limit. This means that you’ll be granted credit up to the value of the security deposit. You have to have the amount ready as you may be required to pay the deposit while applying for a secured credit card or before card activation and use.
Although secured credit cards don’t offer many benefits or rewards, but it’s a great way to improve you credit history with on-time payments and maintaining low credit utilization. It operates like any other credit card – you’ll have to pay interest on unpaid balances every month. If you keep paying on time for a year, your credit score would become high enough to qualify for unsecured credit cards with benefits.
Student Credit Card
Student credit cards are special cards for students attending college with a limited credit history. These cards don’t offer many benefits or rewards but are characterized by lower fees and interest rates than those charged to subprime or secured credit card holders.
You may even be rewarded for timely payments and promising grades if you are a student credit card holder. Moreover, you don’t have to have a high credit score to qualify for this credit card; you’ll get one with limited credit history.
Prepaid cards have absolutely nothing to do with credit. They’re easy to get as your credit history won’t be considered. However, like a secured credit card, you must deposit certain amount before you can start using them and the amount you can use will be confined to the deposit you make.
So how do they differ from secured credit cards? The fact that differentiates the two is how each relates to credit. While a secured credit card contributes to your credit score and thus helps improve your credit, a prepaid card will not have any impact on your credit performance and doesn’t even operate like other credit cards.
Prepaid cards are much more similar to debit cards than credit cards. Some of them can be used at ATM machines for high service charges and some allow you to deposit more money into the account.
Small Business Credit Card
Small business credit card is characterized by features and benefits that favor small business owners. While it is similar to consumer credit cards, the nature of benefits are different from those offered to consumer credit card holders.
For instance, a consumer credit card holder is offered rewards for purchases at retailers. Whereas, a small business credit card holder will be rewarded for spending on advertising or purchasing office supplies.
Additionally, small business credit cards may also offer services like expense tracking and reporting which are pretty useful to many business owners.
Virtual Credit Card
Data breaches are on the rise and credit card users are looking for options to safeguard their data. Even if you shop at large retailers with secure payment options, there’s always risk involved which can cost you heavily.
Virtual credit cards offer highly secure credit facility to credit card users. They help to ensure safer online payments, minimizing the risk of fraud and identity theft.
A virtual credit card is like a one-time online version of your physical credit card. As you make payments online, it gives your retailer access to your credit card information but as soon as the transaction completes, it changes the information so it can no longer be misused. Thus, if a hacker manages to steal your credit card information at any point, the information would be useless and you won’t lose a penny as the data can’t be used for more than one transaction.
A virtual credit operates like any other credit card, except that you need to take a few more steps before using it. Rather than entering your credit card information online, you will be directed to your VCC service to get a new account number which will be used at checkout. As soon the transaction completes, the account number would no longer be usable.