Saturday, November 26, 2011

Types of Credit Cards

I have posted on several occasions about the benefits of getting a credit card, but there are a lot of credit cards out there.  I stress reward credit cards because I am blogging about making money and an easy way to make money is to get paid for your normal expenditures.  There are a few different types of credit cards though which I will go through.

In terms of rewards, there are plenty of different types of reward cards.  It is important to choose one with rewards that you will actually use.  If you are just starting to spend on your own as a college student, I would recommend the generic cashback credit card which gives you, well, cash which can be used for any purchase you want.  If you fly frequently, airline miles credit cards may be more appropriate where you earn miles or points which can be redeemed for miles with each purchase.  There are also hotel reward cards which offer points for redemption with that hotel which may be helpful if you plan on visiting a lot of different places.  When looking at rewards, it is important to see what percentage you are actually earning.  If your rewards program uses points, make sure that the point to cash rate is comparable.  I know for my Citi Forward card, I get a point per dollar spent on it which is the same as other cards, but it takes a lot more points to get the same cash as a reward.  Also be aware of minimum redemption limits.  For example, I have to wait until I get $25 in rewards on my American Express card before I can redeem it as cash or a statement deduction.

Reward credit cards are perfect for ideal spenders who spend within their budget and make their monthly payments on time.  If you constantly carry over a balance month to month, rewards are not what you should be aiming to get.  If you need help financing your normal expenditures (in which case, you may also want to look at budgeting first) then a low interest (APR) credit card is probably more important.  Many of these cards and reward cards have a low intro APR (often at a teasing 0%), so make sure you are aware of how long these last and what the actual APR will be for the lifetime of the card.  The low end of these cards may eventually charge around 11% APR rather than the 18-20% APR of some reward cards.  Of course, no matter what credit card it is, if you pay your bill within the grace period (often 20 days) after your statement comes out each month, you will get charged no interest and won't have to worry about the APR.

Finally, and for probably the most impulsive spenders (I just noticed the order goes in descending stability of managing your finances), there are balance transfer credit cards which offer a low APR rate for transferring the balance of another credit line.  I might make a more detailed post later, but a balance transfer is when you carry debt on a credit card and want to avoid paying interest on it for a while.  You can transfer the balance to another credit card and then get charged the new card's APR.  Many cards offer a 0% intro balance transfer APR for 12-21 months depending on the card.  This means if you are paying 20% on the balance you are carrying on a credit card, you can temporarily move it and avoid paying any interest until the intro period ends.  However, this only stalls for some extra time to get your act together and get the money to pay it off.  It would be much more beneficial to learn how to budget and avoid getting into debt altogether.

You should pay attention to the other details of a credit card when deciding on which one to get, including the annual fee (avoid this at all costs), any introductory offers (Citi offers a $200 cashback if you spend $500 in the first 3 months for a new Citi Dividend card), and the appropriateness of your credit level with the card.  If you are just starting, a student credit card may be more favorable since there is a higher chance you will get approved if you don't earn any income.

No matter what credit card you do end up getting, it's important to find one that matches your lifestyle and meets your needs.  Also, always remember that it is better to use your card responsibly, only for the purchases you would otherwise normally buy, and pay off your balance each month.


  1. This was a refreshing information. I agree completely, there are so many credit cards available that we get confused on deciding which would be better for us. This post will help me and others in selecting wisely.
    Rewards Credit Cards

  2. Thank you for the feedback. :) Let me know if there is anything specific you would like to hear about more in detail.