7 types of credit cards and how to choose one
Key takeaways
- Cash-back credit cards allow you to earn rewards on purchases that can be deposited into your bank account or applied to your statement.
- Frequent travelers might prefer a travel rewards card that allows you to earn points or miles for future trips.
- Those who struggle to make full payments could consider a low interest rate card.
Credit cards add flexibility to your everyday transactions, not to mention added perks. But with different types of credit cards in the marketplace, you're probably wondering, "Which credit card should I get?"
Are you spending more on grocery and food delivery and less on gas? Maybe you're planning more staycations and fewer vacations for the time being. Knowing the differences between the types of credit cards that are out there will help you make the best choice for what you need right now.
Here are seven common types of credit cards that each have their own advantages.
1. Cash back credit card
What it is
Some cash back cards, like the Citizens Cash Back Plus™ World Mastercard®, offer a fixed percentage back on all purchases and don't have an annual fee. Other cash back cards may offer variable percentages back on everyday spending or for certain expense categories like restaurants, entertainment or online shopping. Different cards will outline their cash back criteria and indicate if there are redemption limits.
Benefits and features
Cash back rewards programs add a gamification element to spending that can be used strategically to save on future expenses. Often, your cash back balance can be deposited into your bank account or applied as a payment on your credit card statement. Some cards even allow you to buy partner gift cards with your cash back reward. The top advantages are that you can put this "free" money into a savings account, use it to pay extra on any debts or put it toward the cost of another purchase. One thing to watch for, though, is that you're not paying more in fees and interest charges on your purchases than you're earning in cash back rewards.
When to choose it
This might be the right type of credit card for you if you already make purchases that align with the reward categories. It's also a good fit if you typically pay off the balance every statement cycle so that you're reaping the cash back rewards without paying interest.
2. Travel rewards credit card
What it is
With a travel rewards credit card, you earn points on all your purchases that translate into credit you can use to pay for travel-related expenses like airline and train tickets, hotel stays and rideshares. These perks can add up, but unlike the freedom of use with cash back rewards, you may have to choose from a limited selection of vendors or dates to redeem your earnings.
Benefits and features
This type of credit card also offers a gamification aspect. Travel rewards card holders might pay for most or all their everyday purchases and bills with their credit card and end up accruing enough rewards for discounted or even free flights and hotel stays or other travel-related expenses and upgrades. Some travel rewards cards give you additional points for spending in certain categories related to travel or will waive foreign transaction fees when making international purchases.
When to choose it
If you're a frequent traveler for work or just because you enjoy it, this kind of rewards credit card might be ideal for you to gain significant savings. As with cash back credit cards, you'll want to be aware that annual fees and interest charges don't outweigh the financial advantages you accrue.
3. Credit card with an annual fee
What it is
Many basic credit cards are available without any fee for using them other than interest charges and specific use fees, such as for late payments or cash advances. But some cards charge an annual fee in exchange for significant perks that make it worth the cost. You may get a lower interest rate, priority access to events, exclusive reward offers or discounts for certain purchases with affiliated partners. For example, the Citizens Private Client™ World Elite Mastercard® is an annual fee card that provides TSA Precheck, airport lounge access and automatic travel insurance among other perks.
Benefits and features
The main advantage of these cards is clear — for a comparatively small fee, you have the potential to gain much more in perks and savings than you're paying for the card. But before signing up for an annual fee credit card, it's a good idea to review exactly what it offers and then review your existing credit card statements and spending to evaluate whether the card's benefits naturally line up with what you use your card for. What you gain from using the card should be more than what you pay in annual fees.
When to choose it
A card with an annual fee can make sense when the benefits it offers are greater than the cost of the annual fee and when the perks and advantages are ones you actually use so that the cost of the card is worth it.
4. Store credit card
What it is
Retailers with a large base of customers sometimes offer their own store credit card that may or may not be affiliated with a major credit card issuer. Some cards can only be used with the particular retailer, but others may allow you to use them anywhere.
Benefits and features
In most cases, store credit cards will offer loyalty-based perks. You may get regular discounts, special limited-time deals, early access to sales or points you can apply toward future purchases at the store. They're designed to reward you for shopping with them, but while they may entice you to sign up with introductory 0% interest or a steep one-time discount, they often have high interest rates.
When to choose it
Similar to cash back and travel reward cards, store credit cards are a great tool for shoppers who are loyal to a particular store and benefit from the discounts and advantages they bring. But for the same reason, store credit card users should make the effort to be certain that what they're getting in loyalty rewards isn't negated by interest charges on carried-over balances.
5. Low-interest credit card
What it is
Many major credit card companies and banking institutions offer low-interest credit cards that are designed both to attract new customers and give people who may struggle with money management a way to establish better credit habits. These cards often offer a very low or even 0% annual interest rate for a limited time, typically 6-18 months.
Benefits and features
Low-interest credit cards are something everyone wants forever, which is exactly what makes them attractive for either starting with or switching to if you have high interest rates and high balances with other credit card companies. The introductory interest rate can give you a great opportunity to buy what you need and pay down the balance without the fear of looming interest. However, it's important to realize the rates will eventually go up to be competitive with other credit cards.
When to choose it
If you tend to carry balances forward every month, a low-interest credit card can be a smart way to start fresh or move your debt around so you have a stretch of time to get yourself on track. These cards can also be good for someone just starting out with credit cards or wanting to try a new credit card company.
6. Balance transfer credit card
What it is
Balance transfer cards allow you to move the balances on your existing credit cards to a new account, which usually offers a lower introductory rate. This can allow you to pay more on what you owe without the immediate burden of high interest.
Benefits and features
The main perk of these kinds of credit cards, such as Citizens Clear Value® Mastercard®, is that you're essentially moving or consolidating what you owe to a clean slate. Credit card companies' offers usually include no annual fee, no transfer fee and low or no interest on balance transfers for around 15-18 months, which can let you chip away at paying down your debt without more interest piling up.
When to choose it
If you're motivated to gain control of your existing credit card debt, a balance transfer credit card could be your solution. It can give you a runway to decrease or even eliminate what you owe in principal. However, if you still have a balance on the card after the intro APR expires, these cards usually shift to much higher interest rates than other cards.
7. Secured credit card
What it is
Secured credit cards can help you build credit history. You put down a one-time, refundable deposit as collateral, and in exchange, the credit card company gives you a credit limit equal to or slightly more than the amount of your deposit.
Benefits and features
One of the main advantages of a secured credit card is that you don't need excellent credit to qualify. Since you have to put down a security deposit to open the card, it's less risky for the card company, so you can get this kind of card even if you have a poor credit score. Your credit score can improve as long as you use your card responsibly, and you may be able to transition to a traditional unsecured credit card.
When to choose it
Secured credit cards can be helpful if you want to improve your credit score or can't get approved for a different card. But you'll want to be sure you understand the terms before you sign up because some secured credit cards have annual fees or other charges that can chip away at your deposit and effectively decrease your credit limit.
How to choose the best credit card for you
Selecting the right type of credit card depends on a variety of factors, including your personal financial situation and goals. Make sure you look into the details found in the credit card disclosures related to cash back earnings, rewards spending, introductory and annual interest rates and fees to decide what's best.
Continue your search for the right credit card for you. Learn more about the credit options from Citizens.
Related topics
3 credit card habits to help build a solid credit score
It's important to pay your bills promptly, never charge more than you can afford and keep your credit utilization ratio at the right level.
What is a cash advance?
A cash advance allows you to withdraw cash against your credit card limit, but you should only use a cash advance for emergencies.
Innovations in credit card design
From the magnetic stripe to EMV chips, there have been many innovations in credit cards over the years.
© Citizens Financial Group, Inc. All rights reserved. Citizens is a brand name of Citizens Bank, N.A. Member FDIC
Disclaimer: The information contained herein is for informational purposes only as a service to the public and is not legal advice or a substitute for legal counsel. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.