The Different Types of Credit Cards: Find the BEST for YOU

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Opening a credit card account could help you boost your credit scores. Many credit card companies offer special deals, including low or no-interest introductory periods, cashback rewards, and discounts when you shop with certain retailers. This type of credit isn’t a one-size-fits-all solution, though. There are certain cards that are a better fit for some types of consumers. 

Choosing the wrong card could mean missing out on some of the best deals. Of course, misusing credit could damage your credit scores. Understanding your options is the first step to picking a credit card that can help you build a solid financial foundation

Before you go shopping for a credit card, it’s important to understand your current credit situation. Your FICO score is a snapshot of your credit history that lets potential lenders know the statistical likelihood that you’ll make late payments or default on your account. Scores range from 300 to 850, with higher scores indicating a history of on-time payments and responsible credit usage. 

Here are the FICO credit score ranges according to Experian:

  • 800-850 Exceptional
  • 740-799 Very Good; You may receive low or no-interest credit card offers
  • 670-739 Good; You are eligible for some rewards credit cards and you could get a higher credit limit. 
  • 580-669 Fair; You may have to pay higher interest rates. You may be denied credit. 
  • 300-579 Poor; You may have to pay a fee or deposit to open a credit card account. You may be denied credit. 

Here are the main types of credit cards and how they could work in your favor:

Table of Contents – Quick Links

Credit Builder credit cards

Credit score requirements: Poor to fair credit

Best for: Those with no credit or some past credit problems who want to build a good credit history

Main advantage: Paying the bill on time every month helps you build good credit

Main disadvantage: Must choose carefully; many secured and credit builder credit cards come with hefty fees

If you think a credit builder credit card may be right for you, make sure you read the fine print before you open an account. Some credit builder cards require a hefty non-refundable annual fee that you have to pay upfront. It’s important to make sure that you can transition from a secured card to an unsecured card instead of having to cancel the card and start over with an unsecured card after you establish a credit history. 

While a credit builder credit card can help you raise your FICO scores, you may still be denied for new credit if you have open collections accounts or you’ve recently defaulted on a loan or line of credit. If you want to fix your bad credit or boost your low FICO credit scores, be sure to get a free copy of all three of your credit reports at annualcreditreport.com. It’s crucial to monitor your credit reports for incorrect information and ask the credit bureaus to fix any mistakes. 

Rewards credit cards

Best for: Good, very good, and exceptional credit

Main advantage: Excellent promotional and ongoing rewards including discounts on merchandise and gift cards

Main disadvantage: Some rewards credit cards come with hefty annual fees

With a rewards credit card, you’ll accumulate points in proportion to the amount of money you spend with the card. You can then use those points to reduce your outstanding balance, purchase gift cards, or get deep discounts at certain retailers. This type of credit card works best for people who use the credit card for everyday purchases and pay off the balance in full each month. Many rewards credit cards add significant interest charges if you choose to carry a balance from month-to-month. 

Before you sign up for a rewards credit card, make sure you understand the ongoing terms of the card. You may be eligible for low-interest or no-interest introductory deals, but the ongoing interest rate may be prohibitively high. Read the fine print and make sure that the card is a good fit for your lifestyle, long term. Canceling a credit card can knock points off of your FICO score, so it’s best to only open new accounts if you think you’ll use the card for years to come. 

0% APR credit cards

Best for: Very good and exceptional credit

Main advantage: Interest-free spending makes using this card an inexpensive way to access credit

Main disadvantage: 0% introductory offers often lead to high interest rates that may be retroactive if you don’t pay off the balance before the deadline

If you want to make a large purchase and pay off the balance over time without adding interest charges, a 0% APR credit card may be a good option. Your interest-free period may vary from six to 30 months, depending on your credit score and other qualifications. Be sure to note when the interest-free period ends so you can plan to pay off the card well in advance of that date. 

A 0% APR card may look like a cheap way to borrow the money you need for a big purchase, but if you don’t pay off the balance in full by the end of the promotion, you may have to pay big interest charges. 

Balance transfer credit cards

Best for: Very good and exceptional credit

Main advantage: Helps you pay off high credit card debt faster

Main disadvantage: You may have to pay a fee to transfer credit card balances

Balance transfer cards allow you to move debt from higher-interest cards over to a new account with lower interest or 0% APR interest. The lower interest rates last only for a few months, though. To make the most of a balance transfer credit card, calculate how much you’ll need to pay each month to pay off the total balance before the promotional period ends. Otherwise, you’ll be responsible for paying higher interest rates on the new card. 

Moving your existing credit card debt to a zero-interest balance transfer card is a great way to save money on interest charges. Watch out for transfer fees, though. You may have to pay a certain percentage of the total balance you’ll transfer to the new card. 

It’s smart to leave your old credit card account open even after you pay off the balance in full. Closing credit card accounts could reduce your FICO scores by a few points. 

Travel credit cards

Best for: Very good and exceptional credit

Main advantage:

Main disadvantage:

You’ll need excellent credit to qualify for the most lucrative travel credit cards. Using this type of card can help you upgrade to a first-class seat on a flight, go on your dream trip, and get discounts on entertainment, merchandise, and dining. 

Depending on the card, you may accumulate travel rewards in the form of points or miles. You’ll get 1-2 points or miles per dollar spent with the card. Some travel rewards credit cards offer introductory or promotional offers that double or triple your rewards for a certain amount of time if you meet the other requirements, like minimum spending within the first few months of owning the card. 

It’s important to make sure you can pay the balance in full each month, however. Paying interest on your purchases could significantly decrease your net rewards. 

Look for a travel rewards card with a great sign-up bonus. Make sure the card’s rewards work with your travel plans and fit your lifestyle. To be extra safe, mark the deadlines for promotional offers on your calendar so you don’t miss the deadline to take advantage of additional rewards. 

Cash back credit cards

Best for: Good, very good, and exceptional credit

Main advantage: Cash back can be redeemed on your credit card statement, sent in the form of a check, or directly deposited to PayPal or a bank account

Main disadvantage: Some cash back cards have annual fees and high interest rates

A cash back credit card rewards you when you make a purchase with your credit card. You may get 1%, 1.5% or 2% + back in the form of cash. You can choose to apply rewards to your credit card balance or receive the money directly. Some cards offer bonus rewards in rotating categories. You may get 5% cash back on groceries up to a certain amount during one quarter and then 5% cash back on gasoline during the next quarter. 

You have a lot of choices when it comes to a cashback credit card. Be sure to choose a card that fits with your current spending habits. If you don’t own a car, a cashback card that offers bonus rewards for spending at gas stations may not be the best choice. 

Business credit cards

Best for: Good, very good, and exceptional credit

Main advantage: Helps you keep your business spending and personal spending separate

Main disadvantage: May be hard to qualify for using your business credit so you may have to use your personal credit

You may get valuable perks for opening a business credit card. Low interest rates, additional cards for employees, higher credit limits, and valuable rewards programs are great options when you are shopping for a business credit card. 

If your business is new or you have a side hustle, you may need to use your personal information to qualify for the card. Building a business credit file takes time, so many small business owners find that it’s easier to qualify using their Social Security number. 

Different types of credit cards: Frequently asked questions (FAQs)

Will I lose my rewards if I cancel the credit card?

You may lose rewards when you cancel a rewards credit card, depending on the bank’s terms. It’s smart to plan ahead when choosing a rewards credit card so you don’t feel like you have to cancel the card due to high annual fees or hefty interest rates. 

If you must cancel a credit card account, call customer service and ask about transferring your points, using your miles, or redeeming the cash rewards you have with the account. 

Can opening a rewards credit card cause a drop in my FICO score?

Yes. When you open a new credit card, you may see your FICO score decrease by a few points. The number of inquiries or hard credit pulls on your credit report has a small impact on your overall FICO score. When you authorize a credit card company to pull your credit report so they can approve you for a new credit card, it counts as an inquiry. This could have a negative impact on your credit score. 

Opening a new credit card could also reduce the average age of all of your credit accounts, which could also have a small negative effect on your FICO score. 

Can opening a rewards credit card cause an increase in my FICO score?

Yes. When you use your new credit card to make a purchase and then make a payment on or before the due date, the credit card company reports that activity to the credit bureaus. Recent information makes more of an impact on your FICO credit scores than older information. So, using a credit card responsibility by making on-time payments helps build good credit. 

Opening a new credit card can also help your credit utilization rate by increasing your total available credit across all of your credit cards. Keeping the balance owed on your card below 30% of your total available credit helps you protect and build your FICO score. 

How can I maximize my rewards with a new credit card?

Look for a credit card with a good ongoing rewards program that also has a great sign-up bonus. If your credit is in good shape, you should be able to qualify for some of the best rewards credit cards. 

Concentrate on using only one or two rewards credit cards for everyday spending. If you have a credit card with rotating bonuses in a certain spending category, pay attention to when those categories change. To get the most out of your rewards credit card, you’ll need to be organized. Set reminders in your calendar for spending deadlines so you can get any introductory offers. 

While most rewards don’t expire, it’s crucial to keep track of your accumulated points, miles, and cash rewards. 

Research how to get the most out of your airline miles. Some programs allow you to transfer your miles to partner programs and redeem them for a higher overall value. 

Can I still get rewards if I pay off my credit card before the due date?

Yes. No matter when you pay the bill, you’ll get the rewards outlined in the credit card’s terms. By paying off your credit card in full each month, you’ll avoid paying interest on your purchases. Keeping your balance low allows you to use the full credit limit amount each month on everyday purchases, which will help you maximize your rewards. 

The bottom line

Having a credit card will help you build a solid credit history and support your FICO score if you make the payment on time every month. It’s smart to spend only what you can pay off each month with the card, too. Rewards cards often have higher interest rates, so paying off the balance frequently helps reduce the total amount of interest you’ll pay. 

If you need help building credit, be careful when you choose a new credit card. Watch out for annual fees, money due up-front, and prohibitively-high ongoing interest rates. The best credit cards offer great rewards with an easy redemption format that you’ll use for years to come. 

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