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Are you thinking of applying for a credit card? Credit cards can be a fantastic way to boost your credit score, manage your spending, and reap exciting rewards – from cash back to amazing discounts on select products.
Of course, with great power comes great responsibility. Credit cards can be dangerous if you don’t have a good handle on your spending. That’s why it’s important to identify how you’ll use your credit card(s) and choose the right type of credit card accordingly.
Here, I want to tell you more about the main types of credit cards on the market, who they’re best for, and what their main features are, so you can make an informed decision when you go to apply.
Different Types of Credit Cards
There are many ways to group credit cards – and some may have overlapping features. For example, a balance transfer credit card may also give you cash back, or it could offer other kinds of rewards on their spending.
But after reading this post, you will have a better understanding of the main types of credit cards – as well as which ones could work for your financial situation.
Chase Freedom Unlimited: A Millennial Money Favorite The Chase Freedom Unlimited card offers a $150 bonus after you spend $500 in the first 3 months of opening your account, just do your grocery shopping with your card and you can easily earn a FREE $150 bucks in no time!
Credit Builder Cards
If the main reason you want a credit card is to improve your credit score, credit builder cards are the way to go. Most credit builder credit cards are secured credit cards, which require a small security deposit to obtain. The money is yours — it’s a deposit, not a fee.
They are cards that help you build your credit history, if you pay the monthly bill on time.
This shows future lenders you are reliable and will help you get better credit card offers in the future.
However, the drawback of this credit card type is that only a few credit builder cards will offer any exciting rewards – and most of them won’t.
But once you’ve improved your credit score, you can apply for the more exciting credit cards on the market. Just make sure you pay your balance in full each month.
Pro Tip: Check out all of our Best Secured Credit Cards for 2020.
One of the most exciting things about credit cards is the awesome rewards you can get just by using them – from travel miles to eye-popping discounts!
One of the best rewards cards that we recommend for earning cold hard cash, is the Capital One Quicksilver Cash Rewards Credit Card!
Cashback credit cards fall into the rewards category, but I’ve separated them in this post because I think it deserves to be a category on its own.
Rewards cards often come with annual fees and pretty high-interest rates – so make sure that you pay your balance in full each month.
Otherwise, you could end up paying high-interest rates – and the rewards won’t be worth it.
There are various rewards programs offered by credit card companies, like:
General Rewards Credit Cards
These types of credit cards allow you to collect and accumulate points towards a reward structure, based on how much the cardholder has used the card over time.
The cardholder will be able to spend the accumulated points on things like gift cards, electronics, pet supplies, and more.
Travel Credit Cards
If you’re a frequent traveler like me and still don’t have a travel credit card – you need to get in the game. They are so useful!
I’ve given it its own category below, so make sure you stick around.
Pro Tip: Check out all of our Best Travel Rewards Credit Cards for 2020.
Gas Credit Cards
Did you know that gas credit cards are one of the most popular credit card rewards categories? I’m not surprised! If you drive a lot and rely on a gas-powered car, the money you save on gas could really add up.
There are two types of gas rewards cards – general, and the brand’s own. While general cards can be used across a variety of gas companies, brand-specific cards will offer points or rewards for using it at a one gas company.
Gas cards may offer cashback for purchases at gas stations – and additional perks like access to entertainment, events, etc. Every card company will offer different benefits – so make sure you review them properly before applying.
Learn more about the Blue Cash Preferred Card from American Express offering 3% cash back at U.S. gas stations.
Pro Tip: Check out all of our Best Gas Credit Cards for 2020.
Retail Rewards Credit Cards
The clue is in the name – retail credit cards allow you to collect points by making everyday purchases from specific retailers.
Those points can be redeemed for various products or services, again from that specific retailer. Their interest rates tend to be quite high – so, as before, do your best to pay off your balance at the end of each month.
Pro Tip: Check out all of our Best Rewards Credit Cards for 2020.
0% APR Credit Cards
If you’re planning a big purchase and want to spread the cost of it, a 0% apr card could come in handy.
Purchase cards are designed for shopping – and can be an excellent way to make a big purchase without having to save up for it first. These cards often come with an interest-free period, making it a cheaper way to borrow.
0% interest purchase cards allow you to repay the balance without paying interest at all. The interest-free period will vary, but it can go up to 30 months or more.
The duration often depends on your credit score, as well as the financial situation – so even if a card company advertises a 36-month interest-free period, you could end up being offered a shorter one if your credit score is not the best.
This means that you need to make sure you’ve repaid the full balance by the time your interest-free period ends – otherwise you could end up paying a hefty interest.
Pro Tip: Check out all of our Best 0% APR Credit Cards for 2020.
Balance Transfer Cards
Balance transfer cards can be very useful for anyone who needs a little help in managing their credit card debt.
After all, being in debt sucks – and I know you’re probably keen to get out of it as fast as possible.
And that’s where a balance transfer card could come in handy. If you have a high-interest credit card, a balance transfer card could help reduce the amount of interest you pay.
Balance transfer cards essentially offer a 0% or low-interest rate for a set period (typically lasting a few months up to a year) – and you can move your existing card debt to it for a small fee.
This could help get out of that credit card debt faster.
Pro Tip: Check out all of our Best Balance Transfer Credit Cards for 2020.
Credit Cards for Travel
I’ve talked about these a lot in the past because I think they’re an excellent way to cover some of your travel costs and reap pretty excellent travel benefits.
Travel cards are essentially a way to earn points which you can later spend on future trips. Typically, you’ll get 1-2 points per dollar spent, which may not sound like a lot – but those points really do add up before you know it.
This means that you could escape the cold of winter without paying a dime for your flight, or hotel – if you accumulate enough points, you could use them to pay for the entire trip!
These cards also often offer extra perks like access to VIP lounges, free room upgrades, access to luxury hotels and resorts, and more. (Love to hang out in the airport lounge in peace, check out our Best Credit Cards for Airport Lounge Access.)
With most of these cards, you can also often get a sizable bonus just for signing up – and that’s like free money in your pocket.
Many travel cards also come with no foreign transaction fee, which is great news for anyone who wants to be sensible with their money and avoid incurring ridiculous fees for money transactions abroad.
If you haven’t yet, check out my review of the Chase Sapphire Reserve travel card. I don’t go anywhere without the Reserve – and I honestly think it’s the best credit card option for travelers out there right now.
Also, if you want to learn more about how to put your credit card to work and reap some fantastic rewards, check out the new episode of the Financial Freedom Podcast, where I chat with Brian Kelly – aka The Points Guy!
He knows more about travel rewards than anyone else in the world – and in the episode, he tells you exactly how to optimize your credit card points for travel like a pro.
Pro Tip: Check out all of our Best Travel Rewards Credit Cards for 2020.
Cash Back Credit Cards
Cashback credit cards are exactly what they sound like – a way to get cash back for spending money.
You get cash rewards for making purchases on your card – meaning that the more the card is used, the more cash rewards you’ll get!
It is important to manage your money well and not overspend – but if you can do that, then cashback credit cards are an excellent way to earn rebates on everyday purchases.
You’ll often get around 1% of total purchases (that excludes interest and finance charges) – but some cards will offer higher percentages, often as a sign-up bonus for a limited amount of time.
There are tons of cashback credit cards out there – and each of them has different benefits, bonuses, and spending categories. That means, don’t just sign up for the first one you see – but definitely, do some digging around!
Think cash back credit card could be for you? Check out my ultimate list of the best cash back credit cards to see the top picks.
Pro Tip: Check out all of our Best Cash Back Credit Cards for 2020.
Business Credit Cards
Business credit cards are an excellent option for entrepreneurs out there.
While they offer many of the same features as traditional credit cards – there are often perks that come in especially useful for those running a business (or a side hustle!).
The perks may include exclusive business savings and rewards, expense reports, higher credit limits, or additional cards for employees.
Each card is different, and promotional offers may change – so make sure you know exactly what’s on offer before you apply.
Getting a business credit card is also a smart idea because that way you can keep your business spending separate from personal expenses – and that’ll make life much easier when you need to work out your business outgoings (and you will need to do that at some point).
Pro Tip: Check out all of our Best Small Business Credit Cards for 2020.
Finding The Right Type of Credit Card For You
So, there you have it! The main types of credit cards out there, what they can be used for – and how to make the most of them. I hope this information will help you find the right card for you in the sea of options out there.
If you need more guidance in finding the most suitable credit card for your wallet, check out my recent post about the Best Overall Credit Cards in 2020.
There, you’ll find a detailed breakdown of the most excellent credit cards for millennials right now, including info about their rewards, bonuses, and annual fees.
One thing to remember is the high APR credit cards usually have – and that they aren’t a cheap way to borrow money. Paying the balance in full each month is the only way to make the most of your credit card without incurring high-interest charges.
A credit card is essentially a useful way to spread costs, reap the rewards, and get extra protection on your purchases – but you won’t benefit from owning one if you use it to manage long-term debt.
You can, of course, use a balance transfer credit card with 0% APR – to help you reduce your interest rate, but you have to be careful to make sure you keep an eye on when the 0% APR introductory offer ends.