Contactless transactions are all the rage these days, but credit cards will always be helpful. When applying for a card, know that no two credit cards are the same. Each serves a specific purpose and kind of consumer.
It is then crucial that you know the several types of credit cards out there to know which one to get and how you can use each one to your advantage. If you’re feeling overwhelmed with the number of options available, we have outlined here the most common types of credit cards and how each one can match your financial goals and needs.
Cashback Credit Cards
With cashback credit cards, you can earn cash or points back whenever you make transactions. There are different types of cashback credit cards.
Firstly, a flat-rate cashback card is a card where you earn back a specified percentage with each purchase you make with it. This is extremely helpful for people looking for a rewards program that is simple and straightforward.
Secondly, with a fixed-category type of cashback card, you can get cashback through pre-determined purchase categories such as travel, electronics, groceries, etc.
Lastly, rotating cashback rewards cards allow you to avail bonuses depending on the particular category assigned for a specific quarter. For example, during the first quarter of the year, your card may allow you to earn cashback from various clothing stores. However, the bonuses may strictly apply to only grocery stores in the second quarter.
The rewards and incentives do vary greatly depending on your particular cashback credit card. It would be best to extensively review first the specific terms of your chosen cashback card before applying.
Rewards Credit Cards
Rewards credit cards are known for awarding different incentives every time you purchase.
They are almost similar to cashback, except the reward isn’t just limited to a cashback. They can also come in the form of reward points, store discounts, airline miles, gift cards, and merchandise. You can expect it to cover different categories such as gas, travel, food, household appliances, and more.
However, do take note that rewards credit cards may come with high-interest rates. This may mean that you will need a good credit score to get approved.
Travel or Airmiles Credit Cards
This credit card type is recommended if you find yourself always traveling, whether for business or pleasure.
With every transaction, you may earn travel-specific rewards, such as access to VIP airport lounges, free flights, airline miles, and hotel discounts. Some travel credit cards may also provide you with better exchange rates once you buy something in another country.
Balance Transfer Credit Cards
Balance transfer credit cards are ideal if you already have a credit card and you are looking to reduce the interest on a specific expense.
If this sounds like you, you may consider moving your current credit card debt to a balance transfer card since this typically offers a 0% interest rate or a low alternative. This rate would usually apply for up to 30 months.
You should expect that there will be a required balance transfer fee of up to 5%. However, this can be seen as a very minimal trade-off compared to the interest you will be saving.
Overall, using a balance transfer card may end up either lowering or improving your credit score depending on how you use it.
In general, applying for a credit card can reduce your score. But because you are receiving a very low-interest rate on a balance transfer card, you may improve your score once you’re able to pay back your debts quickly.
Secured Credit Cards
Unlike other options, secured credit cards require collateral or a cash deposit before you’re able to have access to a line of credit. This credit card is for those looking to build a credit history or who want to improve their current credit scores significantly.
The credit limit would typically be half the amount or the same amount as the security deposit. From the creditor’s end, this helps alleviate their risk because they have already secured cash from you. That’s why it is relatively easier to get approved for this credit card.
Once you have built a good credit score, you can then apply for other cards with better terms and benefits.
Co-branded Credit Cards
Some businesses partner with banks and create co-branded cards to reward loyal customers. Once approved, cardholders can avail of different incentives when they buy from the brand. This can come in the form of exclusive discounts, reward points, and sales.
Clearly, this acts much like a store loyalty card. However, like a regular credit card, this can also be used for transactions outside the store.
If you are a frequent flier, you may want to avail yourself of a co-branded credit card from your preferred airline. Many retail stores, groceries, and gas stations also offer this credit card.
Assessing Your Financial Situation
When it comes to choosing the best credit card, you have to take into account a few crucial factors.
You should first assess your financial situation and corresponding financial goals. You must also review your current credit score and any existing debt you may have.
If your goal is to earn incentives, you may opt for rewards and cashback cards. You can also consider choosing a travel or air miles credit card if you’re a frequent flier.
If you are currently focusing on improving your credit score, you may want to avail yourself of a secured credit card. Meanwhile, if you’re looking to save money and minimize debt on a specific purchase, then the balance transfer card may be the right one for you.
Lastly, if you find that you are a loyal customer of a particular brand, you may prefer applying for a co-branded credit card.
Overall, it is up to you to decide which credit card matches your current lifestyle, spending habits, and financial circumstances. Of course, don’t forget to use this purchasing power responsibly and avoid falling into debt if you haven’t already.
