There are several different types of credit cards available, each offering something for different people. When it comes to applying for a credit card, it can get confusing due to the variety and different features each offer. It is important to understand the differences between them and which one is suitable for you. Choosing the right type of credit card can save you money or even earn you money.
How Does A Credit Card Work?
A credit card is a plastic card that gives the cardholder a line of credit with which to make purchases or cash advances. When the cardholder makes a purchase, they sign the sales receipt or authorize the purchase electronically. The credit card issuer then pays the merchant for the purchase and the cardholder repays the credit card issuer for the amount of the purchase plus finance charges and fees, if any.
There are both advantages and disadvantages to using credit cards. Some of the advantages include the ability to build credit, the ability to make purchases without carrying cash, and the ability to earn rewards. Some of the disadvantages include the potential to accrue debt, the possibility of high interest rates, and the temptation to spend more money than you would if you were using cash.
Should I Get A Credit Card?
There is no one answer to this question as it depends on each person’s individual circumstances. However, there are some general things to consider that may help you decide if a credit card is right for you.
Some people find credit cards useful because they can help build your credit history, give you a safety net in case of emergencies, and allow you to earn rewards or cash back on your spending. However, credit cards can also be a source of debt and financial stress if you’re not careful.
Before you decide to get a credit card, make sure you understand how they work and are confident you can use them responsibly. Consider your financial goals and whether a credit card can help you meet them. For example, if you’re trying to save for a down payment on a house, you might want to use a credit card responsibly to build up your credit score and credit report.
If you decide a credit card is right for you, shop around to find one with features that match your needs. For example, if you travel frequently, you might want a card that offers travel benefits like free checked bags or priority boarding.
Ultimately, whether or not a credit card is a good idea for you depends on your personal financial situation and goals. If you’re not sure, you can always start with a debit card or prepaid card to get a feel for using plastic before you commit to a credit card.
What Type Of Credit Card Should I Get?
So if you’ve decided you want to take out a credit card, you may now be wondering, what type of credit card should i get? We’ll take a look at each type of credit card below so you can choose the right type of credit card for your circumstances.
Rewards Credit Cards
The first type of credit card available is a rewards card. If you have good credit history and are able to repay fully each month, then these are a fantastic way to earn cashback and rewards on your purchases.
There are many different types of rewards cards that each offer something different. For example, some offer cashback on all your spending whereas some might offer travel miles or other loyalty points.
Cards that offer perks such as cashback are great for making your regular purchases. You aren’t changing your spending habits yet you are being rewarded for spending.
Combine rewards cards with cashback sites to get even bigger discounts on your shopping. View our post to learn more about how cashback works.
Purchase cards are a type of credit card designed for shopping. They are good to use when you want to spread the cost of a large purchase over an extended period of time.
This type of credit card usually offers introductory 0% interest rates. The interest free period varies between cards and could be from just a few months up to a couple of years.
It is important to pay off your balance within the introductory interest free offer period. This will avoid paying any excessive interest rate charges as it will usually revert to a much higher rate after the offer period expires.
Balance Transfer Cards
If you already have a credit card, these types of cards can offer a way of reducing your interest payments. Balance transfer cards usually offer a long introductory interest free period. So if you have debts on your current credit card and are paying interest, transferring it could save you interest payments. Multiple cards can usually be transferred, allowing you to consolidate all of your debts, making them easier to manage.
You should be aware that although this type of credit card may offer 0% interest, this usually only applies to the balance. So you may be charged interest on any future purchases you make on the card. A transfer fee is usually applied when transferring your balance so it’s important to check each cards terms and conditions.
Find out how to earn money with balance transfer credit cards in this post; How to use credit cards to make money.
Balance Transfer And Purchase Cards
These types of card combine both a purchase card and a balance transfer card into one simple credit card. This means borrowers that require both of these features can use just the one card with the benefits of both. See the above sections for details of balance transfer and purchase cards.
Money Transfer Cards
Money transfer cards shouldn’t be confused with balance transfer cards as they are quite different. With balance transfer cards you are transferring the debt from one credit card to another. With money transfer cards you are transferring non-credit card debts to your credit card.
Money transfer cards usually offer 0% interest for an introductory period. So you can use this to pay off other debt that may incur higher interest charges. For example you can use it to pay off a bank overdraft. You are essentially borrowing cash from your credit card.
Credit Builder Cards
Credit builder cards are aimed at people with a low credit score. Low credit scores could be due to past missed payments or even a lack of borrowing history.
People with low credit scores are deemed high risk by lenders. So these cards have high interest rates but low credit limits. They allow you to build up a better credit score if you pay your bill in full each month as it shows you are more reliable. This can improve your credit score over time and allow you access to better deals in future. Learn how to improve your credit score and improve your access to credit.
These types of cards are designed for people to use when spending overseas. Use your regular credit card abroad to pay for something or withdraw cash and you will likely incur heavy fees.
A travel card allows you to spend cheaply when overseas and save the inconvenience of carrying large amounts of cash. They usually offer cheap exchange rates and free cash withdrawals. Higher interest rates are common on these cards. Pay off your balance in full to avoid paying these. This makes them the best option for overseas spending.
Credit scores are very important as they effect the type of cards you can be approved for, the interest rates and credit limits. The better your score, the more likely you are to be accepted for a better deal.
Those with poor credit history may benefit from using a credit builder card. View this Free Webinar: Understanding Credit And Credit Improvement.
Are you in danger of defaulting on your debts? View this post explaining the debt default consequences.
Type Of Credit Card Conclusion
As we’ve discussed there are several different types of credit cards available. Each offer something different and are targeted at people’s differing needs. For example, those with low credit scores can improve their credit rating with a credit builder card.
For those with good credit scores and regular outgoings, a reward card may be more suitable. You should now be able to identify which type of credit card is most appropriate to your circumstances.
It’s also important to remember to maintain a good credit rating and to check this before applying for credit. It can have an effect on the types of deals you can get including borrowing limits and interest rates.
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