Canada
US
You are now leaving our website and entering a third-party website over which we have no control.
What Are the Types of Credit Cards?
Banks and credit card companies offer many different types of credit cards to cater to diverse financial needs and preferences. This abundance of credit card types gives consumers different ways to manage their finances and pursue their financial goals.
Understanding the different credit card types can help you make informed decisions about which card aligns best with your financial planning and lifestyle.
What are the different types of credit cards?
Let's delve into the common types of credit cards available in the market.
Secured credit cards
Secured credit cards are ideal for individuals who are new to credit or are working on rebuilding their credit history. This type of card will require a security deposit, which acts as collateral and reduces the risk for the card issuer. The security deposit is typically refundable and serves as the credit limit for the card. Secured cards are accessible to a wide range of consumers, including those with poor credit scores or limited credit histories. By using a secured credit card responsibly, individuals can establish a positive credit history over time. If card holders remain in good standing for long enough, they might have the option to graduate to unsecured cards.
Unsecured credit cards
Unsecured credit cards are the most common type of credit card and do not require a security deposit. These cards are issued based on the cardholder's creditworthiness, which includes factors such as credit score, income and credit history. Unsecured cards offer a variety of credit card benefits, such as cash back rewards, points, travel rewards, purchase protections and introductory offers. They typically come with higher credit limits compared to secured cards and are suitable for individuals with good to excellent credit scores who can qualify for competitive interest rates and premium credit card perks.
Rewards credit cards
Rewards credit cards are designed to reward spending by offering points, cash back or miles on eligible purchases. These cards cater to individuals who want to earn rewards for their everyday spending and often come with bonus categories that offer higher reward rates. Rewards can be redeemed for travel, merchandise, statement credits or gift cards, providing cardholders with flexibility in how they use their earned rewards. Other benefits may include travel insurance, concierge financial services, and purchase protections.
Cards to build credit
Cards specifically tailored to build credit are essential for individuals with limited or no credit history. These cards may have lower credit limits and fewer rewards compared to traditional credit cards but serve as valuable financial tools for establishing credit. By making timely online payments and keeping credit utilization low, cardholders can demonstrate responsible credit management and improve their credit scores over time. Cards to build credit often have educational resources and features that help users understand credit basics and develop healthy financial habits.
Student credit cards
A student credit card is designed for college students and young adults who are new to credit. These cards typically have lower credit limits and simplified terms to accommodate students' financial needs and income levels. Student cards may offer rewards or benefits tailored to student lifestyles, such as cash back on dining, groceries or school-related expenses. Additionally, they often provide resources on financial literacy and responsible credit card usage, helping students build a solid foundation for managing credit responsibly as they transition into independent financial management.
Balance transfer credit cards
Balance transfer credit cards allow cardholders to transfer high-interest balances from other credit cards onto the new card with a lower introductory APR. These cards are beneficial for consolidating debt and saving on interest charges, especially during the introductory period. A balance transfer card can help individuals manage debt by combining one balance or multiple balances into a single payment with a lower interest rate. The card allows you to pay off debt faster and save on finance charges. The cardholder often will be charged a balance transfer fee—either a set amount or a percentage of the amount transferred. Also, a higher interest rate will be charged when the introductory period ends.
0% or low intro APR credit cards
A 0% or low intro APR credit card offers an introductory period with no interest or low interest rates on purchases or balance transfers. These cards are advantageous for financing large purchases or consolidating debt without incurring immediate interest charges. Cardholders can take advantage of the promotional period to pay down balances or make significant purchases without worrying about high-interest costs. However, it's important to note that introductory APRs expire after the promotional period, and regular credit card interest rates will apply thereafter.
Cash back credit cards
Cash back credit cards reward cardholders giving them a percentage of cash back on eligible purchases. These cards are popular for their simplicity and tangible rewards, allowing cardholders to earn money back on their spending. The rewards can be redeemed as statement credits, direct deposits to bank accounts, or checks, providing flexibility in how cardholders use their earned rewards. Some cash back cards offer bonus categories with higher cash back rates, making them attractive options for maximizing rewards on specific types of purchases, such as groceries, gas, or dining.
Business credit cards
These cards are designed to meet the needs of businesses. They can be used for business-related expenses like supplies, travel, advertising, equipment purchases and more, helping businesses manage cash flow while earning rewards on eligible spending. Perks and benefits may include expense categorization, employee cards with spending controls, and rewards for business-related purchases. Businesses also benefit from features like higher credit limits, expense tracking tools, accounting integration and customized reporting for financial management. These cards build a separate credit profile for the business entity, distinct from personal credit.
How to decide which one you need
When choosing a credit card, consider the following factors:
Annual fees
Consider whether the card's benefits and rewards justify any annual credit card fees associated with it. Many credit cards come with no annual fee. However, cards with annual fees often come with enhanced rewards, perks and benefits that may outweigh the cost of the fee. Evaluate your spending habits, expected rewards and usage to determine whether a card with an annual fee provides sufficient value to justify the cost.
Rewards/perks
Many credit cards offer reward structures, such as cash back, points, miles or specific benefits like travel insurance, concierge services, and purchase protections. Consider your priorities and preferences when it comes to rewards. For example, if you frequently travel, a travel rewards card with airline or hotel points or miles may be more beneficial. If you have a big family with larger grocery bills, a cash back card on everyday purchases might work well. If your goal is to consolidate debt, look for a balance transfer card. If you want basic value and features, consider a card with no annual fee.
In short, evaluate the earning rates, redemption options, and any bonus categories offered by the card. Then, decide what type of credit cards rewards program or perks align with your spending habits and financial goals.
Credit score and eligibility
Your credit score plays a big role in determining which cards you qualify for and the terms, including interest rates, credit limits and rewards. Generally, cards with higher rewards and premium benefits require a good to excellent credit score. Cards designed for students or for building credit are likely to have more lenient eligibility requirements. Check your credit score regularly. If your credit score needs improvement, consider a card specifically tailored for building credit—like a secured credit card that requires a security deposit but can help you establish or rebuild credit over time.