Types of Credit Cards

There are so many different types of credit cards offered that it can be difficult to know where to start. From a low-interest rate to a rewards card, your credit card type is incredibly important!

Not only do large banks each offer a dozen or more cards, but you can also apply for cards from small and mid-sized banks as well as credit unions of every size.

And among the hundreds of credit cards offered, there are numerous types of cards that have been designed to meet nearly every conceivable need.

Different types of credit cards

When trying to understand the credit cards available, it helps to break it down into several main categories:

Standard credit cards

A standard credit card can be considered just a general credit card that offers no rewards. These are typically unsecured credit cards.

Cards like these are primarily designed to be a safe and convenient form of payment, to finance purchases and to help build credit. Standard credit cards are offered by most major card issuers, banks and credit unions and usually have no annual fees.

Student credit cards

A student credit card is one designed specifically for the needs of young adults with little credit history.

A student card will have no annual fee and may only offer modest rewards, if any. Some student credit cards offer incentives for responsible credit card use, such as making your payments on time.

Student credit card issuers often offer cardholders some sort of education component that teaches them about how to manage their personal finances. Once students graduate, the card issuer can offer them an account with a different type of credit card that’s more suited to their new needs.

Secured credit cards

Wondering how to get a credit card with bad credit? A secured credit card is a special type of card that is designed for people with bad credit or no credit history.

To open a secured credit card account, you’re required to pay a refundable security deposit. With most secured cards, you can choose how much to deposit, but the size of the deposit will equal the size of the credit line you’re extended.

Learn about how to build credit using a secured credit card.

Once you’ve opened a secured card account, it will work just like an unsecured card. You’ll receive monthly statements and will have to make a payment each month if you made purchases with the card. And if you don’t pay the statement balance in full, then you’ll owe interest charges.

The security deposit will only be used in the event that you default on your account (meaning, you make no payments on your outstanding balance). Otherwise, you’ll receive your deposit back when you pay off your balance and close your account, or if the card issuer offers to convert the account to an unsecured card.

Credit builder cards

In reality, as long as a credit card reports to at least one of the credit bureaus, it can be a “credit builder card.”

But when credit cards are labeled “credit builder cards,” they are typically designed to be more accessible to people who are new to credit or who have fair or poor credit but who are actively trying to improve their credit history.

Learn about Self’s credit builder card here.

Store cards

A store card is one that’s co-branded with a retailer and issued by a banking partner. In fact, most large national retailers offer a store card in order to help customers finance purchases and to offer rewards that encourage brand loyalty.

There are two types of store cards: charge cards and credit cards.

Store charge cards

The most common type of store card is store charge cards, which only allow you to make purchases at that store, either in-person or online.

• Store charge cards are typically available to applicants with little credit history or with fair or average credit.
• Store charge cards may only be issued with a very small credit limit and can have interest rates that are much higher than average.
• Store charge cards rarely have an annual fee.

Retail credit cards

The other type of store credit cards available are those that are issued by a large credit card issuer and are part of one of the four major payment networks: Visa, Mastercard, American Express and Discover. Because they are part of a larger payment network, you can use these cards at any retailer that accepts cards from that network.

• Retail credit cards can be applied for in-store, but they will often be available from the card issuer’s website as well.
• Retail store credit cards are almost always rewards cards, and you earn more rewards at the co-branded retailer than you do for other charges.
• Nearly all retail store credit cards have no annual fee.

Rewards credit cards

Reward credit cards are those that offer cardholders some sort of value based on how much they spend. The rewards typically come in the form of points, miles or cash back.

Reward cards that offer points and miles do so as part of a loyalty program that allows you to redeem the points or miles for things like merchandise, travel reservations, gift cards or even cash back.

Cash back credit cards

Cash back credit cards are extremely popular. Unlike travel rewards, including points and miles, you can use cash back rewards for any reason you can think of.

Some cash back credit cards offer the same level of rewards for all purchases, typically 1% to 2% of the amount charged. Others will offer bonus rewards for purchases from certain merchants or merchant categories, while cardholders only earn 1% cash back on all other purchases.

Then there is a popular sub-category of cash back cards that offer 5% on purchases from rotating merchants or merchant categories that change each quarter.

Most cash back cards have no annual fee, but the ones that offer the most generous rewards will generally charge an annual fee.

Travel credit cards

Some of the most popular reward credit cards are those that offer points or miles that can be redeemed for travel reservations.

Many cards offer points or miles with a loyalty program operated by the card issuer, of which travel is one of the most popular ways to redeem rewards. These reward points or miles could be redeemed for travel reservations made through the card issuer’s in-house travel agent, but some cards offer statement credits towards travel reservations charged to your card.

Still, other travel credit cards allow you to transfer your rewards to airline miles or hotel points with travel partners. And some offer a choice of redeeming your rewards in multiple ways.

Airline and hotel credit cards

Credit cards that offer frequent flyer miles were some of the first reward credit cards and they remain very popular today. These are travel reward cards that are co-branded with specific airlines, and they offer the same points or miles that you’d earn by flying.

Hotel credit cards work the exact same way by offering hotel points toward award night stays, but they aren’t as popular as airline cards.

Balance transfer credit cards

What is a good APR rate on a credit card you might ask? When you have outstanding credit card debt, you might consider a credit card that includes a 0% APR financing offer for balance transfers. These offers are typically available on standard credit cards, but you can occasionally find them on student cards, reward cards and business cards.

By law, these offers must last at least six months, and the most generous ones can extend as long as 21 months. After the promotional financing rate expires, any remaining balance incurs interest at the card’s standard rate.

Business credit cards

If you own your own company, or just earn a little extra income on the side, then you have the option of applying for a small business card.

The purpose of a small business card is to separate your personal charges from your company expenses. But a small business card can offer you valuable rewards and benefits.

You still apply for a small business card based on your personal credit and the business owner is always responsible for repayment.

What type of credit card is right for you?

Just as there is no one type of car or one kind of shoes that is right for everyone, you need to choose a credit card that is right for your needs.

Those who aren’t interested in rewards and benefits would probably want to consider a standard credit card. Store cards and rewards credit cards are best for those who avoid interest by paying their balances in full.

Secured cards make sense for those with bad credit, but credit builder cards also represent an option to improve your credit history. And a small business card is ideal for separating your expenses.

Which cards are easiest to get?

When you have had serious credit problems, you need a card that’s easy to qualify for. Both credit builder and secured cards are offered to people with the broadest range of credit histories. Store cards can also be offered to people with below-average credit.

How to choose a credit card

Choosing a credit card is an important financial decision. Once you’ve settled on the type of credit card that you need, you can begin to compare cards from different issuers. You can start with banks or credit unions that you already have a relationship with, but it’s also worth looking online at other card issuers.

How to prepare to apply for a credit card

When you apply for a new credit card, you’ll need information such as your address, date of birth and Social Security number. You’ll also need to give your annual household income.

But otherwise, there isn’t much you’ll need to do to apply once you’ve chosen a credit card.

What credit score do you need for a credit card?

It all depends on the card and who it was designed for. Most premium rewards cards require good or excellent credit, while a standard card may only require fair or average credit.

Secured cards and credit builder cards are available to those with nearly any credit history, so long as they don’t have a current bankruptcy or foreclosure pending, and they aren’t delinquent on any other accounts.

Things that look like credit cards, but aren’t

There are numerous other financial products that include a plastic card, but aren’t actually credit cards.

Debit cards

A debit card looks like a credit card, but it draws on funds that you already have in a bank account. A debit card isn’t a loan and it has no effect on your credit.

Gift cards

A gift card can look like a credit card, but it’s one that was purchased with funds given to a retailer. A gift card isn’t a loan and it has no effect on your credit.

Prepaid cards

Prepaid cards are like debit cards, but they use funds that you’ve placed in deposit with the card issuer. Just as with debit cards and gift cards, a prepaid card isn’t a loan and it has no effect on your credit. Learn more about prepaid cards.

Charge cards

Charge cards are similar to credit cards, in that they do extend credit to the cardholder. But while a credit card can permit you to extend payment over time, a charge card requires that you pay your statement balance in full each month.

There are few charge card issuers left, and the remaining ones often allow you to enroll in an option to extend payment. This blurs the line between credit cards and debit cards.

You have many options

When you look at all of the types of credit cards available, you’ll realize that consumers have a wealth of choices and that the industry is competing fiercely for your business.

By understanding the different types of cards available, and what’s the intended purpose of each, you’ll be able to find the right credit card for your needs.

About the author

Jason Steele has been writing about credit cards and personal finance since 2008, poring through the terms and conditions of credit card agreements to understand the minutiae of how these products work. His work has appeared on Yahoo, MSN, HuffingtonPost and other major news outlets. In his free time, Jason’s a commercial pilot. He graduated from the University of Delaware with a degree in History. See Jason on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.