Originally posted on https://bonsaifinance.com/types-credit-cards-work-lc/
Did you know that 7 out of 10 American have and use credit cards?
There are an estimated 248 million adults in the United States, about 174 million American adults own at least one credit card.
There are different types of credit cards, but no single credit card is better than all others. It depends on what your priorities are. But if you understand your options and ask the right questions, you can have the card that suits best for your spending habits and credit score.
How Credit Scores Works
With a credit card you use, there is a credit score which evaluates your creditworthiness, or simply, how worthy you are of being a credit card holder. The Fair Isaac and Company (FICO) defines credit scores as follows:
- Exceptional (Credit score between 800-850)
- Very Good (Credit score between 740-799)
- Good (Credit score between 670-739)
- Fair (Credit score between 580-669)
- Poor (Credit score between 300-579)
In 2016, U.S. got an average of 673.
The credit score is not only a figure. It shows how well-performing you are with your credit usage. And to perform well, you have to know which credit card is the best fit for you.
Be informed of the different types of credit cards that people use the most:
These are the standard type of credit cards that people use to pay for their grocery or miscellaneous shopping. They are available by banks and get accepted almost everywhere.
One common type is the low-interest cards. If you need to buy something you cannot afford to via cash, this card gives you several months to a year to pay it off monthly with very low or no interest. Make sure to understand the terms and conditions to be aware of unexpected fees or interest.
Consumers love getting a run for their money. These types of credit cards come with incentives for purchasing with their credit card. For a certain amount charged on the card, there are equivalent points that go into your credit.
These points accumulate, and you can redeem rewards such as gift cards, electronics, and jewelry. You can find rewards for plane tickets and hotel accommodation too. The more you use this card, the more cash rewards you receive.
Cash reward cards categorize as follows:
Hotel or Travel Points Credit Cards
Some credit card companies have a partnership with certain hotel chains. You can earn points for how much you spent and redeem your points for free upgrades and perks at the hotel.
One downside is that many of these cards come with an annual fee since hotel rewards can be costly for credit card companies. Retail rewards credit cards
Gas Cards or Rebate Cards
These are either general cards, where card companies treat all gas companies equally or brand-specific cards which favor one gas company.
Airline Credit Cards
This type of card allows you to earn airline mile credits whenever you buy tickets. Like gas rebates and hotel rewards, some cards favor a specific airline, while others favor a variety of airlines.
If you are a frequent shopper or a traveler, or simply a traveling professional, this type of credit card is for you.
Credit Repair or Bad Credit Cards
To recall, a credit score lets banks or lenders know how good you are at utilizing your credit and repaying your debt.
If your credit score happens to range less than average to poor, it doesn’t mean you can’t qualify for a credit card.
There are types of bad credit credit cards that cater to those who have low credit scores. They are perfect for rebuilding or establishing credit due to less demanding requirements.These are:
- Secured credit cards
- Prepaid or debit cards
With secured credit cards, you will need collateral to secure your credit card. This could be your car, jewelry, stocks, or property which needs to be of equal or greater value than the amount of credit you’re due.
A prepaid card is not a credit card at all, but in most cases, establishments treat them as such. It works if you deposit money into your account, then you can use it as a consumable gift card.
The more you buy, the more that deductions you get from your prepaid balance. You can’t spend any more than what you have loaded onto your prepaid card.
Student Credit Cards
Many college or university students have little to zero credit history that makes them not qualify for a traditional card.
Credit card issuers recognize students’ potential, which is why student credit cards exist. Their design is for students who enroll in four-year programs in colleges and university. The goal is to help them start their credit score while they’re young.
Because these are for students, these need a lower standard for approval. The rewards are more limited to valuable commodities than luxuries that traditional and rewards cards offer.
With great potential comes a great risk. While student credit cards help to manage their expenses, there is the tendency to overspend which damages their credit score before it even builds up. If you’re a parent, it will hurt your credit score too as a co-signer.
Finding the best credit card requires the art of discernment. You must have a lot of credit card offers, but how do you know if it’s the right one?
All these types of credit cards can get overwhelming, especially if you have to maintain too many at a time. Not to mention, the process can be excruciating.
Get the Right Types of Credit Cards Today
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