If you’re thinking of getting your first credit card, you may be overwhelmed by the seemingly endless options available. An important milestone like this is not to be taken lightly. It’s important to understand what cards are out there and which may be the best for you. Here are eight of the most common types of credit cards you can research to see which one meets your needs.
1. Secured Credit Card
If you’re new to credit cards, a secured credit card may be a great place to start. Secured cards are more accessible to individuals with lower credit scores and can even help build or restore credit. Often, these cards skip the credit check, which can help you work on improving your credit score right away.
With a secured credit card, a deposit (or money transferred from your checking account) serves as the backing for the card. That amount becomes your credit limit. Every month, you make payments on your balance just as you would with an unsecured card. Your on-time payment history paired with your responsible credit use can work to boost your credit.
2. Rewards Credit Card
If you’re spending money, you may as well be rewarded for it. That’s the mantra for people best suited for a rewards credit card.
Daily purchases, cell phone bills, and fuel expenses tabulate to earn you points from your card provider. These points can be redeemed for tangible items, gift cards, or converted to other rewards. Rewards points can come in handy around the holidays, maximizing your purchasing power for gifts. You’ll earn points when you pay with the card, and you can use points to purchase gifting essentials.
3. Travel Credit Card
Road warriors, wanderlusts, and people up for an adventure can leverage expenses toward their next trip with a travel card. Travel cards allow users to earn points redeemable for travel expenses.
Cardholders can earn bonuses for signing up, referring others, and making a certain number of purchases, based on the promotion. These points convert to essentials like airline tickets, car rentals, and lodging. If you travel for work, this card could give you double the perks. Use these cards to front your reimbursable expenses and you’ll get perks on your employer’s dime. Avoid an ethics violation — review this arrangement with your employer before applying for a card for this sole purpose.
4. Hotel Credit Card
Are you loyal to a certain hotel brand? If so, a hotel credit card may be ideal for you. Often associated with larger hotel companies, these cards offer you points for more than just stays.
You can earn points for daily purchases, purchases made through the cards’ branded store, as well as multipliers on hotel purchases. Points earned with these cards can usually be converted toward discounted stays in the entire hotel family. Consider how regularly you’re booking under the hotel brand. Calculate how many hotel rewards you could earn and determine if it’s worth adding to your wallet.
5. Airline Credit Card
Some folks are dedicated to Southwest, while others love American Airlines. No matter your preference, if you find yourself in the sky on the regular, you should look into airline cards.
These cards are among the most generous with benefits, often offering free flight vouchers for new cardholders. Some issuers even offer companion passes after reaching a certain purchase milestone. You can earn miles for regular purchases, branded store purchases, as well as flights. Pay special attention to mile expiration dates, mile-to-flight conversion rates, and blackout rules before you apply for an airline card.
6. Store Credit Card
Typically offered during your transaction at the cash register, store cards can provide loyal customers with discounts and perks. These rewards and special sales are reserved exclusively for cardholders.
If you are a regular shopper at a store offering a store card, review their list of benefits. Many times, issuers offer multipliers on points for purchases, exclusive sales, and better discounts for cardholders. But beware of the temptation to overspend. Store cards can help you segment your spending, but remember that the card limit doesn’t mean you should reach it.
7. Cash-Back Credit Card
Fans of instant gratification and saving money will love cash-back credit cards. Earning back a percentage of the purchase price can feel like you’re getting an instant discount. Before you apply, make sure you understand the terms.
Some issuers allow you to redeem your cash back as you earn it, which you can apply to each month’s bill. If you don’t want a statement credit, you can request a check to be mailed to you. Others accrue your cash back until a distribution date. This approach can feel like a windfall, but make sure you can cover the total purchase price of your charges. You don’t want to get into a situation where you are depending on your cash back to pay your bill.
8. “No Annual Fee” Card
Not many people like fees, and credit card fees can be among the most frustrating. While some fees can be rationalized, it’s often that a “no annual fee” card can be the best choice.
Cardholders get all the benefits of having access to a credit limit without the fees. They also have the opportunity to boost their credit scores for responsible credit management and on-time payments. Some no-fee cards straightforwardly offer the benefit. Others may require a minimum annual spend on the card to have the annual fee waived. Review your card disclosures to ensure you understand your card’s specific benefits.
Choosing the Right One
Once you’ve researched the different types of credit cards, you’re ready to find the right credit card issuer. Jot down the cards that look the most attractive to you and review their qualification standards and associated fees. Make sure you’re confident in your odds of approval. Each credit application counts as a hard credit inquiry, which can impact your credit score. When you’re ready to submit your application, you can look forward to using your new card for life’s expenses.