The Types of Credit Cards

Credit cards have received a bad rap in recent years because they are linked to financial challenges related to high debt levels. While some people misuse or even abuse credit cards, others are able to manage credit card use in a healthy, reasonable way. The right card that is used responsibly can actually benefit you in various ways. However, with many different types of credit cards available, it is important to apply for the type of account that is most well-suited for your situation and goals. A closer look at the many types of credit cards available can help you to better manage this aspect of your finances.

Unsecured Credit Cards

When most people think about a credit card, thoughts of unsecured credit cards come to mind. These are credit cards that are available for many individuals who have average, good or excellent credit scores. No collateral is required to open the account. In many cases, your interest rate and credit limit will be based on your credit scores, income level and other debts showing on your credit report at the time of your application. It is common to find a new credit card with an introductory offer, such as a zero-percent interest rate for the first 12 months. Because this is one of the most common types of credit cards available, it is wise to thoroughly explore all of the options before you decide which account to apply for.

High Limit Credit Cards

A high limit credit card is usually unsecured. Therefore, it shares many similarities with an unsecured credit card. The primary difference is that a high limit credit card may give you a credit limit of thousands or even tens of thousands of dollars or more. As you might imagine, a high limit credit card has very strict qualification requirements. These credit cards are usually reserved for applicants with a very high income level and excellent credit scores. A high limit credit card also usually comes with substantial and even luxury benefits, such as complimentary concierge service or access to a VIP lounge in airports around the world.

Rewards Credit Cards

You do not have to qualify for a high limit credit card in order to enjoy some rewards from the use of your credit card account. Reward cards are increasingly common and very popular. These are special types of unsecured credit cards that allow you to earn rewards points for each purchase or balance transfer that you make. Reward cards often have various types of rewards, such as the ability to use points for airline tickets, gift cards, merchandise and more. Some reward cards offer only one type of redemption option, but others give you a wide range of options. The accumulation of points associated with these credit cards vary. For example, some of these credit cards may give you double or triple points on specific types of purchases. Reward cards also may have special discounts on hotel stays, concert tickets and other perks.

Secured Credit Cards

An alternative to unsecured credit cards is secured credit cards. Secured credit cards are most commonly used by individuals who do not qualify for an unsecured card based on credit scores. If you have lower credit scores or no credit history, you can place a few hundred dollars in an escrow account for a secured credit card account. Typically, your account balance is directly related to the dollar amount of your escrow deposit. With regular payments, your secured credit card may gradually shift to an unsecured credit card.

Sub-Prime Credit Cards

If you have lower credit scores, you may also qualify for sub-prime credit cards. With sub-prime credit cards, you may have a lower credit score. However, rather than requiring you to place money in an escrow account for a secured credit card, the credit card company may charge you a very high interest rate. As you improve your credit scores, you may be able to request a lower interest rate. An alternative is to transfer your balance from a sub-prime account to a standard secured credit card account when your credit rating improves.

A Line of Credit

A line of credit is closely linked to a credit card. This is because both lines of credit and credit cards enable you to make draws off of an available credit limit. With a line of credit, you may have a fixed term rather than a revolving term. You may also have a firm cutoff date for when you can no longer make draws off of the credit limit.

As you can see, there are many types of credit cards available for you to apply for. Because there are so many variations between credit card types as well as limits, requirements, rates and more, it makes sense to thoroughly compare all of the options so that you apply for the right type of credit card for your needs.