Types of Credit Cards

If you need credit repair, credit cards probably contributed to your current situation. Even if you've had problems with them in the past, they are a necessary part of your financial life.

As we move toward becoming a "cashless society"--common everyday financial transactions require you to carry some form of plastic.

Before you apply for new credit, you need to decide what type of card will work best for your current specific situation and where you are in your credit repair journey. We recommend this tool as a calculator to determine the best card for you.

The following is a brief description of the common types of cards available through banks or other types of financial institutions:

Rewards Programs

Rewards Programs cards offer the card holder incentives, rebates and even cashback rewards for purchases. Examples include additional airline miles, cashback rewards or discounts on merchandise for each dollar charged on such a card. Better than average credit is usually necessary for approval for these cards .

Airline Miles

Airline mile cards or frequent flyer cards give you frequent flyer miles or airline miles credits whenever you use your card. Usually, you as the cardholder accumulate "points" based on the dollar amount of your credit card purchases over a specific timeframe. Based on a predetermined point level, you can then redeem those points for airline travel (much like frequent flyer miles).

Because airline mile reward programs can be costly for the companies that offer them, most have an annual fee. These cards are great for people who travel frequently or for those who want to use their cards to plan vacations, but the annual fee could make them impractical for other people.

Cash Back

Cash back cards give you cash rewards for making purchases with the card. The more the card is used, the more cash rewards you usually get. Most cash back rates are around 1% of your total purchases, excluding interest and finance charges. However, some cards offer a higher cashback percentage with increased usage while still others offer a higher cash back percentage at select merchants or for particular types of purchases.

Since cash back programs are costly to the companies who offer them, they usually have an annual fee, which can vary from $50 to $100. This type of card is particularly good for people who are good about paying off their balances each month. If used appropriately a cash back card can earn the cardholder a significant amount of money over time.

Bad Credit and/or Credit Repair

Credit can easily go from good to bad with poor judgment, mismanagement debt, or simply a change in job or financial situation. This does not mean you cannot get a credit card. There are several options available for people who have had bad credit in the past and for those who are currently trying to repair their credit.

Depending on your specific situation, debt consolidation, use of introductory APRs on balance transfers or other options may be the best choice. However, if you still need credit or want to start repairing your credit by proof of action, there are several types of subprime cards designed to help "rebuild" poor credit histories.

Secured Cards

Secured cards require collateral for approval. With secured cards, a security deposit of a predetermined amount is needed in order to secure the credit line. Usually, the security deposit needs to be of equal or greater value to the credit amount. Collateral can come in the form of a car, a boat, jewelry, stocks or anything else of monetary value. Secured credit cards are for people with either no credit or poor credit who are trying to build or rebuild their credit history.

Often, cards that help to rebuild credit come with low credit lines ($250 or so) and additional fees may apply (application fees, etc.). Be sure to read over any terms and conditions for these add-on services before applying. Be certain of any fees you may incur before proceeding with the application process. If you use the card responsibly and pay all of your bills on time, however, you can ask for a credit increase down the road. The extra fees and low credit lines will be worth it if a secured credit card helps you get your overall credit back on track.

Prepaid Debit Cards

Prepaid cards can be used wherever credit cards are accepted. The advantages of prepaid cards is that there are no finance charges and they help you avoid debt, because all purchases are paid for beforehand. Your credit line depends on how much money you've transferred to the card, so there is very little risk of running up debt, and budgeting is made easier.

Although most prepaid debit cards do not charge finance fees, other fees usually apply, including: monthly fees, application fees, overlimit fees, ATM fees, etc. Make sure you thoroughly understand the terms and conditions for each specific prepaid card before applying.

Business Credit

Business owners and executives can obtain business credit cards that have many of the same features as traditional cards: low introductory rates, cashback rewards, airline rewards, etc. However, business credit cards can also have many additional benefits in comparison to traditional cards.

Some of these additional features include:

Business expenses kept separate from personal expenses
Expense management reports
Additional cards for employees
Special business rewards and/or savings
Higher credit limits

Every card is different and promotional offers often change, so be sure to thoroughly understand the terms and conditions for each card before applying.

Student Cards

Since students usually have little or no credit history, they may often find it difficult to get approval for new credit. Because of this, student credit cards exist. This type of card is to help students build up and establish a credit history.

Banks offer these cards pretty easily because they figure if a student has trouble paying the bill, the parents will probably pay it for them.

Students can take the first step towards building a solid credit history with student credit cards .

Since there are so many different types of credit cards available today, make sure you know the best card for you and your current financial situation before applying or accepting a new card.

Home
Top