Knowing which credit card is right for you can be tricky with many options on the market. Fortunately, most credit cards can be classified into three categories: Rewards cards, credit-building cards, and low interest and balance transfer cards. This classification will help you narrow down your choices. To better understand what to look for, here’s more information on the three major types of credit cards.
Rewards Credit Cards
This type of card gives you something back with each purchase. Reward cards offer cash-back, travel rewards, and other benefits. A flat-rate card gives you a fixed rewards rate regardless of your purchase. Tiered-rewards cards need a little more effort to understand as they provide different rates in different spending categories. If you spend more in certain areas, you’ll need to opt for a card that earns rewards in categories matching your spending.
Rotating bonus cards tend to be even more complex. This is because they feature different bonus categories that rotate in a period. For most of these cards, you’ll need to activate new bonus categories when they rotate to earn elevated rewards. General travel cards give you cash back for travel purchases and are more flexible with how you can redeem rewards.
Low-Interest and Balance Transfer Cards
Since everyone can’t pay their balance in full, cards are specifically designed for people carrying debt. If you consistently pay your credit bill in full every month, then the interest rate on your card doesn’t matter. This is because interest is calculated only when you don’t pay your debt from one month to the next.
Low-interest or 0% cards save you money by cutting the amount of interest charged on your purchases. Balance-transfer cards allow you to move high-interest debt onto a credit card with a lower interest rate. Some credit cards offer extremely low-interest rates or even 0%, but they’re usually offered to people with excellent credit scores.
Credit-Building Cards
A credit-building card helps new card users or consumers with bad credit scores improve their credit scores.
Secured cards are the best ways to get good credit. They require a security deposit, and your credit limit will be equal to the deposit. The deposit makes the card easy to get since it reduces the risk of the credit card company.
Student credit cards are great for college students looking to start their credit journeys. These cards work like regular ones, minus the perks and incentives. They require proof of college enrollment to qualify.
