The key to choosing the right credit card is to determine why you need a credit card in the first place. Based on that assessment, you can start limiting your options by choosing from four different types of credit cards: standard, reward offers, cards for bad credit and specialty credit cards.
Standard credit cards:
“Standard” (non-reward) credit cards are the offers you generally receive in the mail or see advertised on TV. These unsecured offers are available at almost any bank or financial institution. The interest you pay will vary depending on your credit history and current market conditions. Typically, you’ll find limited fees and the lowest interest rate with a standard, non-reward credit card since there are no extra perks or incentives included with these offers.
In addition to the low APR, an 0% introductory APR is often used to lure new customers. With 0% for 12 months or more, it can be a great way to reduce interest charges on new purchases. Plus, many offers provide 0% on balance transfers, allowing you to save on your existing credit card debt as well. A standard, non-reward credit card is the best choice for saving on long-term purchases and is a great option if you have good credit.
Reward credit cards:
Reward credit cards allow you to earn extra perks from using your credit card. There’s a reward program for just about every interest, from travel — to retail stores — to cash. The typical reward program provides 1 point for every $1 in purchases, pays 1% cash back, or provides an equivalent value in gift cards or merchandise. Additional rewards are often given for purchasing from select merchants or locations. Popular rewards include:
- Cash Back – The most common credit card reward, it’s simple and convenient, payable by check, account credit or gift cards.
- Airline Miles – Ideal for frequent travelers, earn free airline tickets, hotel stays and rental cars. Plus, lots of other travel benefits.
- Gas Rebates – A great way to reduce overall gas costs. Earn bonus rebates on all your gasoline and gas station purchases.
- Retail Rewards – Earn extra incentives by shopping where you love. Ideal for dedicated shoppers and loyal retail customers.
But be aware that reward credit cards usually have higher rates and additional fees when compared to standard credit cards. Use these cards sparingly – only when you know you can pay them off quickly. This way you can avoid higher interest charges and still earn great rewards.
Cards for bad credit:
For individuals with bad credit, several options are available to help repair or improve your credit rating:
- Unsecured credit cards are usually reserved for individuals with good credit, but there are a few exceptions for people with bad credit. While they tend to have higher rates and fees, there’s no security deposit.
- Secured credit cards require a security deposit, but approval is normally guaranteed. Typically, your credit limit equals the amount that you deposit, but once you establish a positive payment history you may be offered a higher credit limit in return.
- Prepaid credit cards work just like a debit card. You can only spend what you deposit into your account. Most prepaid cards do not report your activity to the credit bureaus, so make sure you choose one that does if you want to build / improve your credit.
Specialty credit cards:
Specialty credit cards are offered to meet the needs of specific individuals. They provide many of the same features as traditional credit cards, but they provide additional benefits that are targeted to certain types of people:
- Business credit cards are for small business owners or corporate executives. They provide special features including; additional cards for employees, rewards, separate expense reports for business and personal purchases and higher credit limits.
- Student credit cards are designed to help students build credit and responsibly manage money. Limits are kept low to help first time card users become accustomed to a monthly payment. Plus, many offer rewards especially appealing to college students (and parents).
- Store credit cards are considered a specialty cards, but be aware that some of these cards may have ridiculously high interest rates – up to 30% APR – after the introductory period. Unless you are able to pay the balance in full each month, be wary of these offers.
No matter what type of credit card suits you the best, be sure to read all the fine print before you apply. Compare a wide variety of offers first, to make sure you’re getting the best deal. Only you can decide which credit card will work the best for your situation, but knowing how you’ll use your card in the future is the first step in choosing the right offer.