Types of credit cards
Looking for a credit card? Before applying, decide what type of card will work best for you. There are a number of common types of credit cards available through banks or other financial institutions. They include:
Standard credit cards
Standard cards are the most typical unsecured credit cards and are readily available from most banks and financial groups. Where they vary is in how the annual percentage rate (APR) is offered or calculated.
Balance transfer credit cards
These are designed to allow consumers to transfer a balance from a higher-interest credit card or cards onto one with a lower interest rate. For example, if you transfer a balance to a credit card with a 0 percent introductory rate percent , you will pay no interest as long as the introductory period lasts. percent Terms of balance transfer credit cards vary, so be sure to understand the offer.
Low-interest credit cards
These offer either a low introductory rate that rises after a certain period, or a low fixed rate. For example, you may get a card with an introductory rate of 5 percent for the first six months and 10 percent thereafter. For the first six months, any purchases you make balance you transfer will be charged a 5 percent rate. However, any balance that you carry past the six-month period, or any new purchases outside that period, will then be subject to a 10 percent rate percent. Many people take advantage of introductory rates to lower the cost of borrowing on expensive items. Be sure to read all the terms and conditions of the introductory rate to avoid being penalised by fees or accumulated interest.
Credit cards with rewards programmes
These usually reward cardholders with incentives, rebates and even cash back for purchases made on their cards. Users can get additional airline miles, cash-back rewards or discounts on merchandise for each pound spent. Rewards cards usually require a better-than-average credit rating.
Travel/airline credit cards
Airline mile or frequent-flyer cards give users airline (or frequent flyer) miles credits whenever the card is used. Once enough points are accumulated, users swap them for airline travel. All travel programmes are different; read the card’s terms and conditions to find out how many miles you gain for what you spend. A key consideration is how many miles are needed for a free plane ticket. In addition, find out how soon the miles expire. Because airline mile reward programmes can be costly for credit card companies, many come with an annual fee.
Who should use travel/airline credit cards
These cards are great for people who travel frequently or for those who want to use their cards to plan vacations, but the associated fee might make them too costly for other types of cardholders.
Cash-back credit cards
These give cash rewards for making purchases. More use means higher rewards. Most cash-back rates are around 1 percent of the purchase amount. Some cards offer a higher cash-back percentage with increased usage; others offer more cash back at selected retailers or for specific purchases. Since cash-back programmes are costly to credit card companies, some cash-back credit cards also have annual fees.
Who should use cash-back credit cards
This type of card is particularly good for people who are faithful about paying off their balances each month. Used appropriately, cash-back credit cards can earn cardholders a significant amount of money over time.
Reward credit cards
These cards are similar to cash-back cards in that users can accumulate points toward rewards, based on how much the card is used. Reward programmes vary and offers often change, so look over the terms thoroughly before applying. Typical rewards include: • Petrol rebates • Entertainment rewards • Shop discounts for store cards Reward programmes are costly to credit card companies; therefore, many reward credit cards also require an annual fee.
Who should use reward credit cards
This type of card is particularly good for people who faithfully pay off their balances monthly. By minimising their charges, such individuals will reap greater benefits.
Credit cards for poor credit and credit repair
Poor judgment, credit mismanagement or a change in financial situation can flip credit from good to bad. Still, people with poor or rebuilding credit have several options.
Secured credit cards
With secured credit cards, a predetermined security deposit is needed. This deposit generally must be of equal or greater value to the amount of credit offered. Collateral can come in the form of cars, boats, jewellery, stocks or something else of value. Often, cards that help to rebuild credit come with low credit limits (£250 or so). Additional fees may apply. Be sure to read the terms and conditions. Down the road, if you use the card responsibly and pay all your bills on time you can ask for a credit increase. The extra fees and low credit lines will be worth it if a secured credit card helps you get your overall credit rating back on track.
Prepaid credit cards
A prepaid card is not a credit card but is used like one. The advantage of a prepaid card is that it avoids racking up debt because all purchases are paid for beforehand. With prepaid cards, the credit limit depends on how much money is transferred to the card. Most prepaid cards charge fees, including monthly fees, application fees, over-the-limit fees, cashpoint withdrawal fees and more. Be sure to thoroughly look over the terms before applying.
Specialist credit cards
These are for customers with special credit needs, such as business users and students. These sport features similar to traditional credit cards, including low introductory rates, cash-back rewards and airline rewards. However, business credit cards also may have additional benefits such as: • Business expenses kept separate from personal expenses • Special business rewards, savings or both • Expense reporting • Additional cards for employees • Higher credit limits
Student credit cards
Because students have little or no credit history, they often find it difficult to obtain traditional credit cards. Student credit cards are set up to help them build up their credit histories. Student credit cards often scale back rewards, features and other benefits, but they can still be valuable. Used wisely, this type of card lets a student take the first step toward a solid credit history.
Published: 8 February 2008
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