You have hundreds of options when it comes to choosing a credit card. Some provide rewards, others focus on helping you build credit and others provide lower interest rates to work on paying down debt. Learn about the different types of credit cards and their primary uses to find the one that is best for you.
How Do Credit Cards Work?
Credit cards allow you to charge your expenses to a credit account. When out shopping or dining at a restaurant, they work much like a debit card.
The big difference between a credit card and a debit card comes into play when you choose how to manage your money. Debit cards pull money directly from your accounts. In contrast, credit cards provide you with a line of credit that you can pay off when it works best for your finances.
If you use the line of credit available through your credit card, know your interest rates. You’ll pay more for your groceries, dining and other expenses if you don’t pay off your credit card each month because you’ll face interest on the expenses you don’t pay off.
The Consumer Financial Protection Bureau found that Americans paid $120 billion in credit card interest and fees in 2022. That’s why knowing what you can afford is so important to protecting your overall finances.
Another key difference between credit cards and debit cards is that credit cards offer reward points based on how much and what you spend your money on. If you’re looking to maximize your rewards, you might consider having a few different credit cards and strategically charging expenses to the cards based on the rewards categories they offer.
Another reason you might choose to have multiple credit cards is to balance out interest rates. If you know you won’t be able to pay for an expense and want to put it on a credit card until you can afford the item, choose the credit card with the lowest interest rate and fees to protect your long-term finances.
What Are the Different Types of Credit Cards?
Review the many types of credit cards available to find the one that best suits your needs and helps you maximize your finances.
Rewards Credit Cards
Rewards credit cards offer points or cashback on common purchases. Generally, these cards are tailored to specific spending categories to help buyers maximize their expenses by earning rewards. Some categories that these cards award more points or cash back for include fuel, dining and groceries.
While you can use the credit card to purchase items anywhere, the rewards are generally more lucrative within certain spending categories or offer more lucrative reward points for redemption from specific industries.
Each reward card will have different rules about how to redeem your points or cash back but many allow you to redeem points toward your statement balance, a gift card or specific products.
You’ll use your credit card to purchase common items and enjoy reward points based on your interests or preferred spending categories.
Pros
- Points or cashback on all purchases
- Extra benefits, possibly including travel credits or rental car insurance
- No annual fee in most cases
- Possible sign-up bonuses
- Available to people with varying credit scores
Cons
- Account penalties could impact your ability to use or redeem your points
- Annual percentage rates (APRs) are generally high on these credit cards
- You might encounter reward caps or limits within certain spending categories
- To redeem points, you might need a minimum value
- For the best rewards, you’ll need a decent credit score
Popular rewards credit cards available
- Regular APR
19.24% – 29.99% Variable | Blue Cash Preferred® Card from American Express – Rates & Fees 29.99% variable for cash advances Variable APRs will not exceed 29.99%
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Cashback Credit Cards
Cashback credit cards work similarly to rewards cards except that the rewards are in the form of a statement credit or cash back. You won’t be able to redeem them for merchandise.
As you start shopping for these credit card types, you’ll notice some offer flat-rate rewards, while others provide additional bonuses within certain categories, such as fuel or travel. Others offer rotating categories each quarter to provide a variety of ways to earn larger cashback rewards.
Many of these cards offer no annual fee or very low annual fees, making them a good choice if you’re looking to maximize a credit card’s benefits.
Pros
- Cashback rewards are straightforward
- There’s no way for the credit card company to later devalue the cashback reward
- You can find many cards with sign-up bonuses
- Most don’t have an annual fee
- You’ll find lower introductory APR deals
Cons
- Less value if your spending is concentrated in one spending category
- You might experience earning caps
- You can lose the points because of account penalties, such as closure or missed payments
- These cards have higher APRs overall
Popular cashback credit cards available
- Regular APR
19.24% – 29.99% Variable | Blue Cash Preferred® Card from American Express – Rates & Fees 29.99% variable for cash advances Variable APRs will not exceed 29.99%
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Travel Credit Cards
For those who travel regularly or have ambitions to travel more but can’t fit it into their traditional budget, a travel card can help you earn rewards you can redeem for airlines, rental cars and hotels.
Some cards provide additional benefits within certain frequent flier or hotel loyalty programs to help you maximize your benefits and enjoy working with a specific brand if that’s your preference.
You might also find cards that offer unique perks, like access to airport lounges or TSA PreCheck. Most cards offer travel points for spending you complete on everyday purchases.
Pros
- Travel-focused rewards
- Additional travel benefits with some cards
- Flexible reward and redemption options
- Welcome bonuses that could send you on a great trip
Cons
- High annual fees on most cards
- Might be more challenging to maximize the card’s value compared to other card types
- Higher credit score required to qualify
- Not a great option for those who travel infrequently
- Reward values can fluctuate
- High APRs
Popular travel credit cards available
- Regular APR
20.99% – 29.99% variable | Hilton Honors American Express Surpass® Card – Rates & Fees 29.99% variable for cash advances
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Balance Transfer Credit Cards
People facing credit card debt and looking to consolidate and save on interest might consider a balance transfer card. You can transfer your credit card debt from other lenders or card suppliers with low introductory interest rates as low as 0% APR for a set period.
That way, you can pay down your debt by transferring high-interest accounts to the lower introductory rate. Just know that the introductory rates expire, so you’ll want to take full advantage of the balance transfer perks while you can.
Many cards charge a balance transfer fee. This normally amounts to 3% to 5% of the amount you’re transferring, so be sure to factor that into the total cost of using this as a way to pay down debt.
Pros
- Pay lower interest rates during the introductory offer
- Reduce debt expenses
- Pay off debt sooner
- Consolidate multiple balances from lenders and credit card providers
- Can help improve credit score
Cons
- Initial transfer fees can be high
- Many cards have high regular APR once the introductory offer expires
- You’ll likely need good or excellent credit
- If you fail to pay what you owe, you could just increase your debt
- Applying for the card could lead to a temporary drop in your credit score
Popular balance transfer credit cards available
Business Credit Cards
Keep personal and business expenses separate with a business credit card. You can also enjoy earning cash back and rewards on your business expenses. You’ll find a variety of card types available for businesses, including travel cards, secured cards and general rewards options.
To qualify for one of these cards, you’ll need to have a business with solid credit. But once you have one, it will make business purchases easier and allow you to take advantage of perks and bonuses from the card.
Look for a card with the most generous reward program based on the types of expenses your company incurs. Some of these cards provide flat reward rates on all purchases while others are more specific in the categories that are the most lucrative. You can exchange rewards for statement credits, gift cards or perks like airline miles.
Pros
- Sign-up bonuses
- Higher credit limit compared to personal credit cards
- Can build business credit
- Keeps business and personal expenses separate
- Offers a way to help employees manage spending
- Can offer additional bonuses within business spending categories, such as supplies or telecommuting
Cons
- Can require using personal credit to qualify and has high credit standards
- High interest rates
- Might harm personal credit if used improperly
- Applicants must own or be a partner or officer in a business for eligibility
- Users can be personally liable for expenses
Popular business credit cards available
- Regular APR
18.49% – 26.49% variable based on your creditworthiness and other factors as determined at the time of account opening. APRs will not exceed 29.99% The Blue Business® Plus Credit Card from American Express – Rates & Fees
VIEW PROS & CONS: - Regular APR
18.49% – 26.49% Variable based on your creditworthiness and other factors determined at the time of account opening. APRs will not exceed 29.99% | American Express Blue Business Cash™ Card – Rates & Fees
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Student Credit Cards
For people looking to get started building credit, a student credit card is a good place to start. These cards are designed for people with limited credit history, which means they are easier to qualify for.
Most cards do not charge an annual fee and can provide unique student rewards, such as perks for good grades. When students use them responsibly, they can be a good step in building credit to prepare for the individual’s next phase of life.
Pros
- Limited credit history required
- Build credit
- Students can learn good spending habits
- Larger rewards compared to nonstudent cards
Cons
- Starts with low credit limits
- Could impact a student’s credit score if not paid off regularly
- Can lead to temptation to overspend and add to a student’s debt
- Higher interest rates compared to nonstudent cards
Popular student credit cards available
Secured Credit Cards
Most credit cards are unsecured, which means that you don’t have to put money down as collateral. But secured credit cards require a cash deposit to get a line of credit.
Because of the initial deposit required and the fact that the company holds this as collateral, these are some of the easiest credit cards to get approval for. If you have no credit, you might find this card your best option for getting established.
Pros
- Easy to get approval for
- Lower fees compared to unsecured cards for bad credit
- Makes it challenging to overspend because of strict limits
- The initial collateral deposit is fully refundable
- Can transition to an unsecured card once credit is established
Cons
- You are not guaranteed to get approval
- Requires that you put down a deposit
- Credit limit is dictated by how much you put down as collateral
- Rarely provides rewards
- As long as the account is open, your deposit is inaccessible
Popular secured credit cards available
Which Credit Card Type is Right For You?
Selecting the right credit card based on your needs will ensure that it provides more benefits than fees. Before applying for a card, you should complete extensive research and understand reward categories and fees to best weigh the card’s pros and cons.
Avoid getting into debt by ensuring the card’s fees and penalties won’t harm your finances. Make a plan to pay off your credit card monthly to avoid debt and maximize the card’s benefits.
Before applying, you should also know your credit score. Applying for too many credit cards and getting denied because you don’t qualify could harm your credit for a few months, making it harder to qualify for the card you want.
Finding the Best Credit Card Based on Your Needs
Applying for a credit card is not something you want to do on a whim. Review your options and make the best choice based on your spending categories and finances to get the most out of your card. Consider having a few credit cards with varying reward types to maximize their benefits. Just be sure you know the payment deadlines and commitments to avoid harming your overall credit.
Frequently Asked Questions
Which credit card type is best?
The best credit card type in most situations is a rewards credit card because it provides financial benefits for everyday expenses.
What is the hardest type of credit card to get?
The hardest type of credit card to get is a black card, known for being for the wealthiest individuals. The Centurion Card from American Express is well-known for being extremely challenging to qualify for.
What credit card has the highest limit?
The Chase Sapphire Preferred Card offers a $100,000 limit, which is the highest limit you’ll find on a credit card.
How do credit cards impact my credit score?
When you carry a large balance on your credit card, that can bring down your credit score because you’re using too much of your revolving credit. But it can also raise your credit when you use 30% or less of your revolving credit and pay it off in full monthly.
About Rebekah Brately
Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.