Is there really a difference between one type of credit card and another?
Everyone knows what the Visa or MasterCard looks like. Most of us are familiar with that little logoed card that allows us to purchase any item we want with a simple swipe, but unless you own a credit card and have done thorough research, you probably don’t know that credit cards are not a one-size-fits-all deal. There are many different types of credit cards available on the market, and when deciding what kind to use, make your choice based on a card that is the best fit for your creditworthiness and your individual financial needs.
Different Types of Credit Cards
- Premium Credit Card: This is one step above the standard credit card, and based on the lender’s analysis, is given to customers who demonstrate their creditworthiness and ability to pay the debt off easily. Typically, the premium cards have higher credit limits, lower interest rates, more reward options and fewer credit card fees than most.
- Secured Credit Card: Made for people who have experienced past credit problems or who have lower credit scores, secured credit cards give the user a second chance to restore their credit and prove their creditworthiness again. The downfall is that applying for this card requires the user to place a substantial amount of cash upfront as security against the credit purchases.
- Standard Credit Card: These are the cards usually offered to the general population. In most cases, this card carries a middle range interest rate and other related fees at a standardized price.
- Student Credit Card: Similar to the standard credit cards, but as they are an initial credit card for students, they come with low credit limits—often as small as a few hundred dollars.
- Business Credit Card: These are usually offered to people who have registered a business. In most cases it is registered under the business name with the business identification number. The purpose in doing this is to offer the business its own credit identity, to keep tax records straight and to keep the business credit rating from affecting personal ones.
- Store or Gas Credit Cards: Slightly different from the standard Visa or MasterCard, as these can only be used in the store where the credit was offered.
Basic Financial Credit Terms
Before applying for your first credit card, you should fully understand other credit financial terms as well, otherwise you may end up with a few surprise fees. Learning to decipher these important terms will allow you to do a better job of managing your money properly.
A card’s credit limit is the maximum amount that can be charged to the card at any given moment. So, if you have a card with a $2,000 credit limit, when you reach this purchasing limit, you won’t be able to charge any more to that credit card until you reduce the balance below $2,000. Note that if your creditor does allow you to go over the limit, you could be charged a penalty fee.
This is the amount on your credit card prior to your monthly payment. If during a month you charge $200 to your credit card, then this amount, plus any fees and the calculated APR rate, is your balance. If you pay this entire amount off within the month, then your balance would return to 0, otherwise your balance is reduced by the amount of your payment. Note that the higher you keep your balance over a long period of time the more your credit score is adversely affected.
This is the Annual Percentage Rate your credit card lender charges. Different users are offered different APR rates. Normally, people with higher credit scores get lower APR rates as a reward for their prompt payment, while those with past credit issues are usually offered higher APR rates. These rates can fluctuate during the year, depending on whether you chose a fixed APR rate or a variable one. Fixed rates remain the same, while variable rates may start low and gradually increase or decrease throughout the year.
The Grace Period
This is the leeway time you are given to pay your balance before a finance charge is applied. In most cases this grace period applies to when the credit card lender receives the payment. Not all credit cards have grace periods, but many do, especially if you are creditworthy. If you happen to be finance savvy, apply for a card that has a grace period; pay all of your credit card balance off on a monthly basis, and you probably won’t have to pay the APR finance charge.
Credit Card Fees
Some credit card companies charge annual, monthly, cash back, international use or other fees. In most cases, these fees are listed within the contract of the credit card application. This is why financial experts always suggest you read the fine print before signing any credit card contract.
Because the credit card business is competitive, many companies offer incentives and rewards, especially to long standing customers, or those who are creditworthy and have high credit card scores. These rewards take the form of cash back, airline discounts, points to redeem for certain shopping items, or other types of incentives.