What Are The Different Types Of Credit Cards?

With a total of over 600 different credit card offerings from banks and credit unions across the U.S., credit cards are one of the most popular tools for borrowing money and making purchases. Finding just the right card or cards for you can be a bit tricky, however.

To make this a little easier, let’s explore the main types of credit cards – with a focus on what each has to offer – so you can make the best decision for your financial well-being.

Understanding Credit Card Types

Understanding the different credit card types is an important first step in finding the right card (or cards), for you. Everyone has a unique financial situation and individual goals, which is one reason why several types of credit cards are available.

While many credit cards have similar features, certain key differences can help you decide which cards have a place in your wallet. For example: Some types of credit cards offer attractive rewards and perks but have a stringent approval process, while other credit card types have lower interest rates or are designed to help you build your credit.

With all that said, it’s now time to take a deep dive into the major classifications of credit cards so you’ll have no trouble deciding on which direction you should go.

Cash-Back Credit Cards

Cash-back credit cards typically return a percentage of the amount you spend on your credit card by giving you a statement credit. For example, if you spend $1,000 and earn 1% cash back, you’ll receive a $10 statement credit. Some cash-back credit cards feature a set percentage, while others have tiers for different categories or bonus cash-back offers.

Rewards Credit Cards

Rewards credit cards are among the most popular and well-known types of credit cards. These rewards can include everything from points and airline miles to store credits and gift cards.

Travel Credit Cards

Travel credit cards feature a rewards structure that gives you points when you make purchases using your card. This card option may also include other travel benefits, such as lounge access, no foreign transaction fees, complimentary upgrades and travel insurance. Travel cards typically have a tiered rewards structure, with bonus points or multipliers when you spend on travel (for example, 5x membership rewards on airfare and hotel purchases).

Co-Branded Credit Cards

Co-branded credit cards combine the benefits of a store card and a rewards credit card. These cards can help frequent shoppers or travelers enjoy more benefits and rewards with a particular business. Cards that are considered co-branded are usually issued by familiar credit card companies (such as Visa, Mastercard and American Express) and feature the store, airline or hotel logo.

Co-branded credit cards often have membership requirements or annual fees but may offer worthwhile discounts or rewards if you’re loyal to a particular brand.

Credit-Building Cards

While you may be able to build your credit with other types of credit cards, credit-building cards are specifically designed to help people with a lower credit score, or a limited credit history, boost their credit.

Student Credit Cards

Student credit cards are aimed at helping students build credit but typically have a lower credit limit than other cards. Many students don’t have much income and may completely lack a credit history. Unlike some other credit cards, student cards don’t usually expect excellent credit or a high income, making it easier for students to qualify.

Secured Credit Cards

A secured credit card requires you to make a cash deposit as collateral for your purchases. Most credit cards are unsecured, meaning the lender assumes a greater risk when you borrow money. Secured credit cards are more like debit cards because you’ll have the money to back each of your purchases.

For example, if you want to spend $500 on your secured credit card, you’ll probably have to make a $500 cash deposit before you can use your card for purchases totaling that amount. With a typical, unsecured credit card, there’s no upfront cash involved. You put charges on the card and pay your credit card company back after the fact.

Secured credit cards can help you build your credit and are generally much easier to qualify for than unsecured credit cards.

Low-Interest Credit Cards

Low-interest credit cards are popular among consumers looking to make a big purchase and pay it off before the credit card’s introductory period ends. The appeal of these cards is that they may charge 0% interest during the introductory period or offer a lower interest rate than other credit cards.

0% APR Cards

Maybe you’ve seen advertisements for no-interest credit cards. Cards with a 0% annual percentage rate (APR) offer 0% interest during an introductory period, after which a variable rate takes effect. These cards are popular among consumers who want to make a large purchase and pay it off before the introductory period ends.

Introductory offers are usually only available to new card members and can last from just a few months up to 21 months. Though 0% APR cards can be helpful financial tools if you use them correctly, make sure you know exactly when the introductory period ends and have a plan to pay off any balance beforehand.

Balance Transfer Credit Cards

A balance transfer card can help you save money by moving debt from one credit card to a card that has a lower interest rate. For example, if you have a $5,000 balance on a credit card that charges 25% interest, you might opt to transfer your balance to a new card with a 0% introductory offer.

Balance transfer cards typically charge a fee when a transfer is made, which can be a flat dollar amount but is more likely to be a percentage of the balance (such as 3% – 5%).

Business Credit Cards

A business credit card can be useful for business owners who want to borrow money to make purchases, earn rewards or cash back, and build business credit. Like personal credit cards, business credit cards often come with clear benefits – which, in their case, are designed to attract business leaders.

Company credit cards are a great way to build credit for your business, increasing your purchasing power as your business grows. You can also provide your employees with business credit cards and easily track expenses to help your business run more efficiently.

Be aware that if you’re a business owner and apply for a new business credit card, it could affect your personal credit, too.

Charge Cards

Charge cards are very similar to credit cards and are often confused with credit cards. The key difference between charge cards and credit cards is that you have to pay the balance on your charge card in full every month.

Unlike credit cards, charge cards don’t have a preset limit; charge card issuers evaluate your spending patterns and may approve larger purchases if they believe your financial situation and payment history call for it.

Pros And Cons Of Different Credit Card Types

Every type of credit card has advantages and drawbacks. While you might like the benefits associated with a particular type of card, it’s also important to be aware of its less attractive features.

How To Choose The Right Credit Card

With so many credit card options, choosing the right one can seem like a challenge. Before you make your decision, take the three steps discussed next.

Consider The Requirements

Every credit card has its own requirements, and while you can’t be certain you’ll get approved, knowing the card’s general requirements can help you decide whether applying for approval is worth it. Though you might not find these requirements clearly spelled out on the card issuer’s website, you can typically get an idea of the requirements by consulting various financial resources.

Some credit cards, such as those designed to build credit, may approve applicants with a very modest credit score. On the other hand, premium travel cards often look for excellent credit and a low debt-to-income ratio (DTI) from those who apply.

Consider The Costs

It might be tempting to choose the card with the best rewards or perks, but it’s also important to consider the card’s costs. Read the entire card agreement and pay close attention to annual fees, interest rates, foreign transaction fees and additional charges for late payments.

Consider Your Goals And Priorities

Ultimately, your goals and priorities should guide you toward the credit card that’s best for you. If your objective is to build credit and minimize the card’s costs, a basic credit card may be the right fit.

If you’re a frequent traveler and less concerned about costs, you might enjoy the benefits or rewards offered by travel and airline cards.

The Bottom Line

There are plenty of credit cards out there, and with so many to choose from, it might feel a tad overwhelming. However, once you understand how different types of credit cards work, you’ll be able to narrow down your options and choose the card issuers that best meet your needs. Whether you’re a student looking for your first credit card or you want to enjoy the perks of a premium card, you’re likely to find something that works for you.

Carefully consider the pros and cons of any credit card you’re thinking of getting, and keep this in mind: Americans average having almost four credit cards, so if you feel like there’s no one perfect card for you, you can potentially have more than one card to accommodate different purchases and achieve different financial goals.

Sign up for the Rocket Money^SM app today to effortlessly track your spending and get a better sense of whether applying for a new credit card would be in your best financial interests.