Sometimes, the sheer amount of credit cards out there can make it difficult to make a decision. But it's also difficult to choose because there are so many different types of cards. To make the decision easier for you, let's go over some of the types of cards on the market.
Rewards credit cards
Rewards credit cards are extremely popular. If used responsibly, you can profit from these cards. What's meant by responsible use? Using a card responsibly means that you never carry a balance. When the bill arrives, you pay the bill in full by the due date. Rewards credit cards tend to have higher interest rates, so carrying a balance is a terrible idea. You'll end up paying a lot of interest and this will wipe out your rewards.
So the way to profit from rewards credit cards is to always pay the bill in full. But you also need to choose the type of rewards that matches well with your spending patterns. For instance, if you drive a lot, then a cash back card with rewards on gas purchases might be appropriate. If you spend fly frequently and use the same airline all the time, then an airline-branded card might be the best choice.
There are several additional types of subcategories when it comes to credit cards.
Cash back cards: Cash back rewards cards offer rewards on everyday type of purchases. For example, you might get rewards on gas, movies, restaurants, or even theme parks. Some of these cards offer a straight percent across the board or by category. For example, a card might offer 3 percent on groceries. Or a card might offer 1.5 percent cash back on all purchases. Some even have rotating quarterly categories, so it's important to read the fine print so you understand the rewards programs. Otherwise, you can't take advantage of it.
General Travel Rewards: With travel rewards cards, rewards are earned as points or as airline miles. These credit cards are an excellent choice for someone who wants the flexibility to choose different airlines when booking flights.
Airline-branded cards: This type of card is perfect for someone who is loyal to one airline. Often, these cards have excellent rewards and feature free bags and other nice perks.
Hotel-branded cards: Do you consistently stick with one hotel brand? If so, a hotel-branded card will help you quickly earn free nights. Some of these cards also have great perks, such as late check-out times and anniversary bonuses.
The point with rewards cards is to come out ahead. But this only works if you don't carry a balance and choose the type of rewards that matches your lifestyle.
Low-interest cards: These cards feature a low APR and they're great to have as an emergency backup. It's never a good idea to carry a balance, but if you experience a crisis, such as needing a new roof, it's nice to know you can put it on a low-interest credit card for two or three months and not lose your shirt.
And some of these cards offer a zero percent introductory rate for a period of time on purchases. These cards can be used to purchase an expensive item that you can pay off during the intro period. Be aware, though, if you have a balance when the intro period ends, you'll have to pay interest on the remaining balance at the go-to rate.
Balance transfer cards: These cards feature either a low or zero introductory APR for a period of time. If you have excellent credit, this is a good way to pay off a balance while paying zero interest.
Student cards: A few issuers offer these cards and they're a great way for young people to build credit. The interest rates aren't terrific, but they aren't terrible, either. You do have to be able to prove you're enrolled in college.