With credit card offers filling up mailboxes across the country, is it any wonder that people may be confused by what appears to be dozens of the same offer coming from different lenders. However, nearly every solicitation varies from the others in some big and small ways. Knowing what type of card you’re looking at is the first step in choosing one that best meets your needs. While there are a few major differences, some offers are combinations of these major themes; others have subtle differences that may affect what it costs to borrow. Here’s what you need to know.
Plain Vanilla Credit Cards
These are standard, run-of-the-mill cards that are generally thought of when credit cards are considered. Provided by nearly every bank, financial institution and many retailers and merchants, a standard card requires no collateral; however the cost of using one is dependent on an applicant’s credit score. The higher your score the better the interest rate will be and the larger the credit limit. Plain vanilla cards are typically the first general credit card a consumer will be approved for as they cost lenders less than other types of cards.
What to look for: Beyond looking for a low APR for purchases and an adequate credit limit, many standard cards encourage new customers to apply with a zero or low APR introductory rate. Be sure to understand how the rates apply, when the introductory period will expire and how high the ongoing rate will be.
Secured Credit Cards
Sometimes referred to as credit for people with poor credit, a secured credit card requires some form of collateral to back the loan. It may be money on deposit in a specific account or a lien on your home or auto. Typically, the value of the item needs to be of equal or greater value than the amount being borrowed. This is a good option for people who need to establish a credit history.
What to look for: This type of card is intended to be used for a short period of time to help you establish or repair your credit, so a large limit isn’t typical; expect a limit of $300 – $500. Look for a card that doesn’t charge an application fee and one with no or a small annual fee. Be sure that the account activity will be reported to the major credit agencies by asking a representative before applying.
Reward Program Cards – Travel, Cashback, Points or Miles
With so many choices, there’s sure to be a reward credit card program for each individual’s desired purposes that also provide the potential of earning great bonuses. This is one type of credit card that requires some thought to choose one the best meets your needs. For example; Travelers would benefit the most from a frequent flier or travel reward cards, which does not make much sense for someone who stays close to home and would enjoy the advantages of earning cash back rewards instead. Also, be aware of your accumulating rewards and bonuses… don’t let your credit card rewards to get wasted.
What to look for: Don’t bother with anything less than 2% or equivalent in rewards. Check if additional rewards are given for purchasing from select merchants or categories. For example, make a purchase from Amazon.com with an Amazon credit card and earn double reward points. Because these programs can be costly, an annual fee is often applied to the card; look for one that does not have fees attached.
Student Credit Cards
With the enactment of the CARD Act, anyone under 21 years of age is required to have a cosigner to be approved for a credit card unless they can prove sufficient income to manage the account on their own. A student card is designed to help young people establish a credit history, which is essential for future borrowing needs. Many
What to look for: There’s little difference between a student card and a standard card, except the educational services often provided by the issuer. For example, Visa has a website for student’s to learn how credit works and help them to make wise choices. Shop around for the lowest rates and best terms, just as you would for any other credit card.
Balance Transfer Card Offers
While balance transfer offers may be a gimmick to lure you in, they are a great money saving gimmick for cardholders who carry a balance that are worth examining.
What to look for: If you transfer a balance from a high interest rate credit card to a lower rate card, there is usually a transfer fee and sometimes a time limit at the lower interest rate. Be sure that you’re really benefiting by adding all the costs up before you make the transfer.
The best credit card for you is a highly independent decision. What’s good for one person may not be good for you. No matter which type of card you choose, the focus should be on maintaining a decent credit rating or building or repairing a damaged one. Be sure to read the terms and conditions to reap all the benefits of any credit card you’re considering. Keep in mind that credit cards should be used as short-term loans and repaid as soon as possible. Be prepared to pay off the balance each month so as not to incur interest charges or become overly burdened with credit card debt. In this way, you’ll be borrowing from the bank free of charge.