When thinking about applying for a new credit card and researching the different types of credit cards available for businesses and consumers to choose from, there are usually four lines of thought that come to a person’s mind. These are typically categorized into four major groups: type, style, issuer and brand or networks.
- Types of cards: unsecured, secured, prepaid, debit, charge, and gift cards.
- Styles of cards: student, business, travel, rewards credit cards, etc.
- Issuers of cards: Chase, Citi, Amex, Bank of America, Capital One, etc.
- Brands (networks) of cards: Visa, MasterCard, American Express, Discover.
Let’s take a closer look at each of these aspects of credit cards.
1. Credit Card Types
People often mistake gift cards, prepaid cards, and debit cards for credit cards, but they are not credit cards at all. A true “credit” card offers consumers or businesses a credit line from a bank or other financial institution to use as money in exchange for paying some form of service fee or interest charge to the institution. The credit available to the consumer or business is borrowed money that must be repaid over time, hence the term “credit” card.
Prepaid, debit, and gift cards do not offer any money or credit to borrow from institutions. The 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.
Unsecured Credit Card
A traditional unsecured credit card is issued by a financial institution, and it allows consumers or businesses to use up to a certain amount of credit as money to pay for goods and services. In exchange, accountholders usually pay service fees, such as an annual fee, plus interest. Credit limits and the annual percentage rate (APR) are determined by an applicant’s credit history and score.
This standard revolving line of credit does not have a fixed number of payments and doesn’t have to be paid in full each month. It typically requires only a monthly minimum payment due, based on the amount that remains borrowed following each billing cycle.
Charge Card
Typically reserved for people with near-perfect credit, a charge card is very similar to a credit card, but usually requires the cardholder to pay their balance in full every thirty days or so. Charge cards are also known to have uncapped spending limits, with tougher penalties for missing a payment and potentially 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 of a few hundred dollars is usually required for secured cards, and this dictates the amount a cardholder has access to in terms of their credit limit. Secured credit cards give users a real credit line and report activity to the major credit bureaus each billing cycle. The primary difference between an unsecured and secured credit card is the collateral needed to open a secured credit line.
Prepaid / Gift Card
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. You can only use the card up to the amount deposited, but they are typically re-loadable. The main difference is that gift cards don’t often have account information associated with them since they are usually given to other people. Pre-paid cards are commonly used by the person who applied for them and may contain service fees. Neither of them typically reports a user’s activity to credit reporting agencies. Prepaid cards can be handy for people with really bad credit.
Debit / Bank / Check Card
Cards that give cardholders access to their bank checking or savings account for use at financial institutions are known as debit, bank, or check cards. Most of today’s bank cards carry one of the major brand logos such as Visa or MasterCard so they can be used like a normal unsecured credit card by any merchant that allows Visa and MasterCard payments.
Cardholders can also use them to take money out of their account at ATMs by entering a PIN number, but they may have to pay some sort of fee to do so depending on the location or type of ATM. Unlike credit cards, debit cards can only be used for spending up to the amount in the cardholder’s financial institution checking account, with some credit unions and banks now rewarding their members to use their debit card more.
2. Styles of Credit Cards
There are several styles of cards that are often referred to as specialty credit cards that align with specific categories. Unlike the other types of credit cards, specialty cards often overlap with other specialty cards. For instance, you can have a business credit card that offers cash back along with travel rewards. Below is not an extensive list of styles, or categories, but covers some of the most popular ones.
Business
Business credit cards are tailored specifically to small companies, large corporations, or mid-sized businesses. Having a business credit card helps companies keep track of expenses for tax purposes and can offer a number of benefits, including cashback, travel rewards, low foreign transaction fees and other kickbacks to businesses and their employees.
Student
These credit cards are customized for students and are often used to help college students establish their credit history report and score. Student 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, or for earning a certain GPA.
Travel & Airlines
These cards are great for frequent flyers or those who travel frequently. People can earn points towards flights, fuel, and hotels; purchase special packages at select destinations; and earn private access to amenities at participating hotels or airports. If planning to travel abroad frequently, it’s a good idea to look for credit cards that also offer reduced or no foreign transaction and other related fees.
Cash Back
Cashback credit cards allow you to earn cash back on qualifying purchases and often offer an additional cash back bonus if you use your card often, use it on specific services, with certain merchants, or within a particular time-period. Cash back can usually be redeemed for cash, a statement credit or towards a gift card. Depending on your card, some redemption options can be more beneficial to you than others.
Rewards
Reward cards come in all different shapes and sizes. Many of which we’ve already covered in other sections of this article. They include cash back, travel, business, and student rewards. In general, rewards from credit card spending typically come in the form of points, cash back, bonuses, miles, points, rebates, memberships, exclusive club benefits, and other discounts.
Balance Transfer
Cards categorized as balance transfer cards offer an extended introductory APR on balance transfers. Some provide the same extended introductory rate on purchases too. These teaser interest rates, usually 0% APR for 6 to 21 months, can be especially attractive to people carrying large balances on high-interest rate credit cards, loans, or lines-of-credit. Opening the new credit card with a balance transfer offer allows the cardholder to transfer the higher-rate balance to save on interest, possibly a lot, over time.
Be careful if you make additional purchases as those purchases could be subject to your regular purchase APR from the beginning, even though your balance transfers will be at zero percent during that time. When you make your monthly minimum payment, it could be applied to your balance transfers only, leaving you with a monthly interest charge on the purchases even if you paid the entire amount of the purchases made during that billing cycle. You will not be able to pay off those purchases, or avoid the interest charges, until the remaining balance transfers and those purchases have now been paid in full.
0% APR Cards
Don’t let the title fool you – these credit cards don’t carry a 0% ongoing annual percentage rate forever. Rather, they will offer an extended introductory APR on purchases, and possibly balance transfers too, which will eventually default to your regular APR.
Low Interest
Low interest rate credit cards offer either a low variable or fixed-rate APR for the lifetime of the card, but typically come with less rewards.
3. Credit Card Issuers
An issuer is a financial institution that provides credit cards and their limits to businesses and consumers. Issuers manage several aspects of the credit card, including the application, approval process, credit limit, distribution, benefits, rewards, services fees, cardholder payments and more.
Nearly every major local bank and credit union offers some sort of credit card and issues them to approved applicants. However, most people also have at least one card issued by one of these well-known nationwide companies, some of them affinity cards: American Express (AMEX), Bank of America (BOA), Capital One, Chase, Citi, Discover, U.S. Bank, and Wells Fargo.
4. Credit Card Networks
There are four major credit card networks in the United States, but more throughout the world. The different network brands are accepted at different stores, but most large companies accept all major brands. These brands include Visa®, MasterCard®, American Express®, Discover®, and JCB.
Visa
One of the largest credit card networks allowing debit, prepaid, business, and personal credit card transactions, as well as many other financial-related services.
MasterCard
A leading global payment solutions provider that allows credit card issuers to issue MasterCard-branded business, personal, debit and pre-paid cards to be used on its network.
Discover
Direct banking and payment services company that issues credit cards primarily to consumers in the U.S. Although it mostly issues its own cards to use on the Discover network, the company also allows 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 to businesses and consumers.
JCB – noteworthy add., and leading international network
Japan Credit Bureau (JCB) is a global payment system and leading credit card brand in Japan that is growing rapidly world-wide. JCB International offers numerous benefits and rewards to its card members throughout the world.
It is also important to understand the costs associated with credit cards, no matter their type or category. We’ve got you covered with a breakdown of credit card costs and fees.
