Types of Credit Cards

different types of credit cardsWhen researching the different types of credit cards available, there are usually three lines of thought that come to a person’s mind, which are typically categorized into these three major groups:

Types of cards: standard, secured, prepaid, debit, charge and gift cards.

Style of cards: student, business, travel, and rewards credit cards, etc.

Brands of cards: Visa, MasterCard, American Express, Discover, JCB.

Credit Card Types

People often mistake gift, prepaid, and debit cards for credit cards, but in actuality they’re not credit cards at all. A “true” credit card offers a consumer or business credit from a bank or other financial institution to use as money in exchange for paying some form of service fee to the institution. The “credit” is borrowed money that has to be paid back. Hence the term “credit card”.

Prepaid, debit, and gift cards do not offer any money or credit to borrow from institutions and a purchaser or account holder has to put money on the card or in an account for it to work. These cards can only be used for purchases up to the amount that was pre-paid, or deposited into an account.

Standard Credit Card – Issued by a financial institution that allows consumers and businesses to use up to a certain amount of money as borrowed credit in exchange for paying a service fee. Credit limits and APRs are determined by an applier’s credit history and score. The standard credit cards that most people think of are revolving lines of credit that do not have a fixed number of payments and don’t have to be paid-in-full. They only require a minimum payment due, which is usually monthly.

Charge Card – Typically reserved for people with near perfect credit, a charge card is very similar to a credit card, but usually requires the card holder to pay their balance in full every thirty days. They’re also known to have uncapped spending limits, with tougher penalties and higher fees. American Express is the primary charge card provider in the United States.

Secured Card – Secured credit cards are most often used by people looking to rebuild their credit. A down payment is usually required for secured cards, but they also give users a real credit line and report activity to the major credit bureaus.

Prepaid / Gift – These cards are very similar to each other in that they each require you to put money into an account before you can use them and you can only use up to the amount deposited. They are typically re-loadable. The only difference is Gift cards don’t typically have account information associated with them since they are usually given to other people, whereas pre-paid cards are typically used by the person who applied for them. They don’t typically report a user’s activity to credit reporting agencies.

Debit / Bank / Check – Cards that give cardholders access to their bank accounts for use at financial institutions. Most of today’s bank cards carry one of the major brand logos such as Visa and MasterCard so they can be used like a normal credit card by any merchant that allows Visa and MasterCard payments. Cardholders can also use them to take money out of their account at cash machines by entering a PIN number, but they will usually have to pay some sort of fee. Especially when taking money out of a machine served by another bank.

Styles of Credit Cards

There are several styles of cards which are often referred to as specialty credit cards. Unlike the other types of credit cards, specialty cards will often overlap with other specialty cards. For instance, you can have a business credit card that also offers cash back, and a cash back credit card that also offers a low or introductory Annual Percentage Rate (APR).

Business – Cards that are tailored specifically to small companies, large corporations or businessmen. Having a business credit card helps companies keep track of expenses for tax purposes and can offer a number of other benefits and rewards to businesses and their employees.

Student – Customized for students and are often used to help college students establish their credit. They credit cards often come with rewards and benefits that are beneficial to college students such as bonus points and cash back for using the card at gas stations and restaurants.

Travel & Airlines – These cards are great for frequent flyers such as traveling salesmen. People can earn points towards flights, gas and hotels, purchase special packages at select destinations, and earn private access to amenities at participating institutions.

Cash Back – Allow you to earn cash back on qualifying purchases and usually offer a significant additional cash back bonus if you use your card often, use it on specific services, or with certain merchants.

Rewards – Reward cards come in all different shapes and sizes. Many of which we’ve already covered in other sections on this page. However, in general, rewards usually come in the form of points, cash back, bonuses, mileage, rebates, memberships, exclusive club benefits and more.

Balance Transfer – Cards categorized as “Balance Transfer Cards” typically offer an extended introductory APR fee period on balance transfers. Some will even provide the same extended introductory rate on purchases too. These “teaser” rates – usually 0% APR – can be especially attractive to people carrying large balances on high interest rate credit cards.

0% APR Cards – Don’t let the title fool you – these credit cards don’t carry an ongoing 0% annual percentage rate. Rather, they usually offer an extended introductory rate APR on balance transfers and purchases which will eventually default to your regular APR.

Low Interest – Low interest rate cards offer either a low variable or fixed-rate APR, or a low introductory APR that last for several months and sometimes even more than a year.

Brands of credit cards

There are 5 major credit card brand networks worldwide. Different brands are accepted at different stores, but most large companies accept all major brands. The brands are: Visa®, MasterCard®, American Express®, Discover® and JCB.

Visa – One of the largest credit card networks that offers debit, prepaid, business and personal credit cards, as well as many other related financial services.

MasterCard – A leading global payment solutions provider that allows card issuers to issue branded MasterCard business, personal, debit and pre-paid credit cards.

Discover – Direct banking and payment service company that issues credit cards primarily to consumers in the US. Although they mostly issue their own cards, they also allow other companies to issue Discover branded credit cards.

American Express – Also known as AmEx, American Express is a global financial services company that issues credit cards, charge cards, prepaid cards and gift cards for businesses and consumers.

JCB – Japan Credit Bureau is a global payment system and leading credit card brand in Japan that is growing rapidly world-wide. JCB International offers a numerous benefits and rewards to its card members throughout the world.

Next we cover credit card costs and fees

Posted on January 4, 2012 by in Credit Cards

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