“Pick a card, any card.” We don’t normally associate those words with choosing the right credit card, but making the best selection to satisfy our financial needs is often like playing the luck of the draw — we know that whichever card we choose will come with its own advantages and benefits.
Obtaining a new credit card, whether it’s your first or fifth, doesn’t have to be a gamble, however. Like an auto loan or home mortgage, a credit card is a major financial commitment, a relationship between you and a lender that needs to be fulfilling on every level.
If you are in the market for a credit card, you’re in for a different kind of luck. Since it’s Financial Literacy Month, now is the time to examine the many different types of credit cards out there, and which one might be best for you.
Secured credit cards are “secured” by a monetary deposit paid by the cardholder, which becomes their credit limit. Secured cards are good options for people who want a basic, starter card, or those with poor credit who’ve been declined a regular line of credit.
Cardholders are disciplined in their borrowing and repayment habits, since they’ve paid forth their own credit with their own collateral. Credit limits are usually a low amount — approximately $200-$300.
The most ubiquitous types of credit cards are unsecured, meaning they have none of the restrictions of their secured cousin. Most people with good or excellent credit are fortunate enough to be approved for unsecured cards with very generous credit limits, extending into the tens or even hundreds of thousands of dollars.
However, where secured cards are granted to most everyone with a security deposit, unsecured card customers are screened stringently on their credit history, income and financial reputation before being approved.
3. Rewards/Loyalty/Cash Back
Essentially an unsecured card with a turbo boost, or VIP seating at a concert, a “rewards” card functions like any other credit card but, like an interest-bearing bank account, begins to stockpile all sorts of nifty perks as purchases are made onto the card. Common benefits encouraging use of a rewards card are frequent flier miles, gas station rebate points, gift cards, hotel discounts, and best yet — cash back credit cards.
Loyalty card programs are often marketed under different names, so look for words like “points,” “Gold,” “Travelers,” “Advantage,” and other regal, fancy-sounding titles.
4. Low Interest
Low interest credit cards are like an amalgamation of secured and unsecured cards — sort of a second cousin, three times removed. A low interest card does what its name implies — it has a low interest rate, usually as low as 0% APR.
What’s low about it is that this absence of interest is also short-lived; typically, the 0% APR is fashioned as an introductory offer to consumers that lasts a finite period (anywhere from 30 days about 1 year), after which a regular interest rate is established.
Student credit cards are like the fraternal twin sibling of a secured card — the younger sibling who hasn’t established any credit history yet. Credit card rates on student cards are commonly 0% APR for an introductory rate and turn variable after a select time.
Taking into account that many college students juggle part-time work and school, annual fees are kept low (or are absent altogether), and rewards for these types of credit cards are more in line with small cash back incentives for groceries, pizza, books and school supplies, especially for young men and women living independently for the first time.
Business credit cards mean business because they award incentives to the business owner. Different from a personal credit card (numbers 1 through 5 on this list), business cards are meant to charge expenses associated with owning and operating a business of any size.
Like other cards of its kind, business credit cards vary in their annual fees, introductory and variable APRs, and rewards programs. A popular perk is airfare points for frequent fliers who travel around the globe on business.
Don’t feel like you need winner’s luck to get the credit card that’s a good fit for you. All it takes is an understanding of your own financial habits, what your regular expenses are and what kind of card you think will benefit you most. Noting that, picking the right credit card should be a winning hand.