Credit cards provide an enviable level of financial freedom for those who are responsible enough to maintain their credit score and fortunate enough to gain approval for generous lines of credit. Unfortunately, these potentially liberating cards can also be a route to debt, poor credit, and loss of financial freedom when used improperly.
With so many kinds of credit cards to choose from, and offers coming in the mail on a regular basis, how do you know which cards to apply for? If you’re looking for a comprehensive guide to credit card types, here’s breakdown on every kind of credit card you’ll find:
Store cards, also called retail credit cards, are offered by stores like JC Penney and Fingerhut and let you earn points for purchasing products or services from their in-store or online catalogs. If you know that you like shopping at a specific store, you may want to see if they offer a retail card and apply. After all, if you’re going to be spending money there anyway, you might as well earn some rewards and put your credit to good use in the process.
However, according to Bonsai Finance, if you’re looking for a card that will help you build credit fast and affordably, a retail store card like the one provided by Fingerhut may not be the best route to take due to inflation, high interest, low credit lines, and lack of flexibility.
Travel Rewards Cards
With a travel rewards card you can earn points and miles that can be redeemed for travel expenses such as plane tickets and hotel stays. These cards are usually offered by airlines, hotels, and other kinds of travel-related companies. If you’re a frequent flyer or you enjoy taking road trips on a semi-regular basis, you may find one of these cards to be a beneficial addition to your wallet.
If you use it often, eventually you’ll build up enough miles to take all or most of a trip for free. These cards are recommended for people who already have a history of travelling. If you feel enticed by the idea of travelling but aren’t already a frequent traveler, it may be better to wait until you have a proven record of travelling before applying for one of these cards.
Credit Builder Cards
Credit builder cards, also commonly called secured credit cards, are ideal options for people who have poor credit and can’t obtain approval for an unsecured card. These cards are attached to a secured credit line that you have to match with an equal deposit when you open the account.
For example, if you apply for a secured card with a $200 credit line, you would have to deposit $200 to open the account. Thus, you’re essentially using your own money to build credit. The catch is, you need to repay the account balance in full and on-time to keep your credit score climbing.
Balance Transfer Cards
Some card providers will offer balance transfer deals that allow you to transfer your balance from another credit card to a new card for the purpose of reducing or eliminating the cost of interest on repayments. The balance transfer card will usually have an introductory APR of 0% that lasts for a specified time period.
For example, you could apply for a balance transfer card, transfer $500 from another card into the account, and repay it in full without paying any interest on the balance owed. Then, a couple or a few months later, your APR would return to a normal level as specified in the account terms. These cards are good for people who are trying to undergo a period of significant debt consolidation and reduction.
Gas Rewards Credit Cards
Gas rewards cards provide cash back when you pay at the pump using your card. These cards are sometimes offered by specific gas station chains, but there are also multi-chain cards that let you earn rewards for pumping at a variety of different gas stations. Since most people have a vehicle that they have to fuel up routinely, it usually makes sense to have at least one gas rewards card in your wallet.
The Blue Cash Preferred Card from American Express and the Citi Premier card are two of the most flexible and generous cards when it comes to gas rewards. Other notable mentions include the Bank of America Cash Rewards card and the Chase Freedom card.
Student Credit Cards
Student credit cards are a good starter option for young people with new credit. The lines of credit are usually small, but the terms are ideal for credit-having novices. All students should apply for a student credit card before jumping up to larger credit lines, as it helps to build positive credit usage habits.
Students can use their cards to deal with emergency funding needs related to their schooling or transportation, so it’s a good backup fund to have on standby. Plus, having a credit card at a young age will look good when you go to fill out your first rental or auto loan application.
0% Interest APR Cards
These credit cards let you pay no interest on balance transfers and purchases for a certain period. They’re essentially like balance transfer cards, except the 0% APR applies to new purchases as well as any old balances that are transferred from other cards. You’ll need a decent-to-good credit score to be approved for one of these cards, especially one that has a longer 0% APR introductory period.
Some of the best 0% APR cards with the longest intro periods include the Wells Fargo Platinum card and the Discover it Cash Back card, which also has a low regular APR. The BankAmericard is another interesting option to consider because it provides free ongoing access to your FICO credit score.
Pick Three Card Types and Go From There
For most people, there’s really no need to have more than 4 or 5 credit cards in use. If you’re just starting to become familiar with credit card types, it would probably be best to apply for no more than three to start out.
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