7 Types of Credit Cards and Who They’re For

If you're new to credit cards, you might be surprised to learn that there's more than one type. You can actually choose from several different types of cards, each tailored to different financial needs and goals.

Choosing the right card for your situation can help you build credit, expand your spending power, and even earn rewards for things like free flights, discounted hotel stays, or simply statement credits.

…

Types of Credit Cards

Are you interested in getting a credit card? Make sure you understand all the different types of credit cards available so you can make the right choice. Some credit cards may belong to two or more categories. For example, a travel rewards card might come with a special balance transfer offer.

Cashback credit cards

Cashback cards are one of the most popular kinds of credit cards. Just like the name suggests, users who have a cashback credit card can earn a percentage of the amount spent as cash, usually in the form of a statement credit.

Some cashback cards have a straight baseline rate for all purchases, but many offer a higher rate for certain categories like groceries, gas, restaurants, travel, and more. The extra rate on these special categories may stay the same for the entire time you have the card, but can also rotate every quarter depending on the card.

Related: Best Cashback Cards

Travel credit cards

A travel credit card usually earns rewards in the form of points or miles and offers higher reward rates on flights, hotel stays, rental cars, cruises, and more. There are two main subtypes of travel credit cards: branded travel cards and general travel cards.

• Co-branded credit cards: If you apply and receive a travel credit card with a certain airline or hotel brand, such as a Southwest card or a Hilton card, you’ll typically earn points or miles when you fly or stay with that provider. You may also receive special boarding access, potential room upgrades, and even a fast track to elite status.
• General travel cards: These cards usually allow you to earn points or miles that you can redeem through the issuer’s online portal or transfer to a variety of providers. If you don't have loyalty to a specific airline or hotel chain, a general travel card might be the better pick.

Travel cards often come with convenient perks for travelers, like rental car insurance coverage, trip cancellation/interruption insurance, and lost/delayed baggage protection. Plus, they usually have no foreign transaction fees, so you’ll be able to spend money abroad fee-free.

Related: Best Travel Credit Cards

Balance transfer credit cards

Balance transfer cards offer 0% APR for transferring balances from existing cards. The exact time frame for these offers varies depending on the card, but they usually last between six and 21 months.

Most credit cards usually charge a balance transfer fee that is 3% or 5% of the transferred amount, usually with a minimum of $5 or $10. For example, if you have a $10,000 balance, you could pay up to $500 in balance transfer fees. In rare cases, a credit card will not charge a balance transfer fee.

Card owners who are carrying a balance on a card with a high APR might benefit from opening a balance transfer card. If you can pay off the balance before the 0% APR offer expires, you might save hundreds or even thousands in interest. Even if you can't pay off the whole balance before the 0% APR offer ends, you can still pay off part of the debt faster.

Keep in mind that any balance remaining on a balance transfer card after the 0% APR period ends will be subject to the regular APR and interest will start accruing. The issuer may also rescind the 0% APR early if you miss a payment or if the payment is returned. In that case, the APR will switch to the regular rate.

Related: How to Do a Balance Transfer the Smart Way

Student credit cards

Student credit cards are designed for college students, who likely have a limited credit history or no previous credit experience. While student cards usually have lower credit limits, which limits your spending power, they often offer benefits like a basic cash-back rate on everyday items or a special bonus if you earn a certain GPA.

Some student credit cards don’t charge foreign transaction fees, so you can save money if you’re studying or traveling abroad. Once you graduate, you may be able to qualify for a regular credit card in place of the student card.

Using a student credit card is like getting a bike with training wheels. It's the perfect way to cultivate healthy credit habits and build a solid credit score.

Related: Best Cards for Beginners

Secured credit cards

While different card categories have varying features, credit cards essentially have two different functional types: unsecured and secured. An unsecured credit card is approved based on your credit history, meaning the credit line is not secured by any deposit. Most cards on the market are unsecured credit cards.

A secured credit card, on the other hand, requires a cash deposit to “secure” a credit limit. Your deposit ultimately serves as collateral in the event you’re unable to pay off your balance. The amount you deposit will also determine your credit limit. For example, if you put down a $500 deposit, your card will have a $500 credit limit. That said, some issuers offer greater credit limits than the cash you put down.

Secured credit cards are designed for borrowers with bad credit or no credit. As the card issuer takes collateral, there’s less of a risk if you default on the card or make frequent late payments — the issuer will simply use your deposit to recoup its funds.

Many issuers that offer secured cards will periodically review your account to determine if you're eligible for an unsecured card. Using a business card for all your relevant expenses means you won't have to dig through personal bank and credit card statements to determine all your potential deductions.

Business credit cards

A business credit card is designed to be used for, you guessed it, business-related expenses. But you don't need to have a formal LLC or articles of incorporation to get a business card. Even sole proprietors can get business cards.

Business credit cards tend to have higher credit limits than personal credit cards. Running a business can be expensive and it’s helpful to have a business credit card to help you float those costs until your invoices get paid. Plus, a higher limit means you can charge more purchases on a credit card and still maintain a healthy credit utilization ratio, which is good for your business credit score.

Business credit cards often offer rewards on common business expenses, like electronics, shipping, telecommunications, restaurants, and gas. Many also offer rewards on travel expenses and provide travel perks like airport lounge access, both of which are a great upside if you or your employees frequently travel.

Using a business card instead of a personal card can make it easier to find all your eligible deductions once it's time to file your taxes. If you use a business card for all your relevant expenses, then you won't have to dig through personal bank and credit card statements to determine all your potential deductions.

Related: Best Business Credit Cards

Store credit cards

A store credit card, also called a store-branded card, is a card associated with a specific store or chain. Their value is typically limited to that brand as they don’t offer much in terms of rewards or benefits when used elsewhere.

Store cards typically offer cash back or points when shopping with that particular retailer. You may also get extra perks like free expedited shipping, a birthday coupon, early access to sales, and more.

In general, store credit cards have a lower credit limit than general credit cards. They also usually have much higher APRs. If you get a store card, make sure you only use it for purchases you were going to make anyway. Avoid overspending just to earn rewards or because you have increased spending power as this can leave you carrying a balance from month to month. Accumulating interest on a store card means you end up paying way more for your purchases than you need to and will quickly erase the value of any rewards you earned on those purchases.

…

So, What Card Do You Choose?

Before deciding what card you want, you have to think about what cards you’re eligible for. Some cards, especially high-level travel, balance transfer, or cashback cards, have stringent credit score requirements. If you have fair credit, you may not qualify for one of those cards just yet.

When you visit a card issuer’s website, they will usually state the credit score range you need to be in to qualify, like excellent, good, fair, etc. Use this information to help you determine if you're eligible for a card.

Many issuers also offer prequalification for credit cards, meaning they’ll do a soft inquiry on your credit (these don’t impact your credit score) to give you an idea of whether or not you’re likely to be approved. It’s not a guarantee that you can get the card, but this process can save you from applying for cards you’re unlikely to get approved for.

Choose the right card for your needs

Then, start thinking about what you’re hoping to get out of a credit card. For example, if you have any upcoming trips, you may want a travel credit card. If you prefer staying at a certain hotel, you can get a branded credit card just for that hotel chain or a general travel card where you can get rewards on all kinds of vacation-related expenses.

Once you know the kind of card you need, you can start comparing specific cards and card issuers. Make sure to look at the rewards program, annual fee, APR, sign-up bonus and any additional features or cardholder perks, like travel insurance, cell phone protection or statement credits. And no matter what kind of card you choose, try to avoid carrying a balance unless it's an emergency. Interest rates from credit cards are some of the highest available and it can take months or even years to pay off a large balance.

If you're nervous about choosing the right card, remember that there's no limit on how many credit cards you can have. Start with a credit card that aligns with your current needs and use it for a few months. If your needs change, or as you feel more comfortable using credit cards, consider applying for another card that offers a different or complementary benefit. General advice advises a six-month gap between credit card applications to minimize short-term credit score impacts.

Related: How to Choose a Credit Card

FAQs

What are the four main types of credit cards?

The four main types of credit cards are rewards cards, balance transfer cards, credit building cards, and store credit cards.

Rewards credit cards include cards that earn cash back and travel rewards. Store credit cards would be cards that can only be used at specific stores.

Related: Best Rewards Credit Cards

What is the difference between a credit card and a debit card?

A debit card is tied to a checking account. When you use a debit card to make a purchase, it immediately withdraws funds from your bank account.

A credit card, however, is a line of credit issued by a bank. When you make a purchase with the card you are borrowing the money and will receive a statement at the end of the billing cycle with a payment due.

Related: Erika's Favorite Credit Cards

. . .