The answer to the question “Why so many types of credit cards?” can be summarized in one sentence: the more credit cards available, the more likely they are to meet the needs of businesses and consumers. Some choices may appeal to their needs, interests, or qualifications. Research shows that the average American holds two to three cards. Data from credit card history is also being tracked to understand consumers’ purchasing habits better.
The first cards issued by banks were elementary, with a single set of features and a standard rate of usage fees. They also had standardized qualification criteria. With the ups and downs of the economy, credit card companies discovered that many people no longer qualified or were not interested in credit cards.
Over time, the market began to change, with customers seeking out products and services aligned with their lifestyles and financial situations.
Credit card companies realized this and introduced cards with multiple interest rate tiers and lower fees. Most importantly, they introduced rewards programs to provide the added value and incentives needed to convince many to apply for credit cards.
Credit cards types
Reviewing the different types, you can find out which credit card is best for your business and yourself.
Standard Cards
You can get these credit cards from financial institutions or banks. They are unsecured, so you do not have to pay a deposit. Balance transfer credit cards can be used to consolidate debts. You can also apply for low-interest credit cards with a small annual percentage rate to get started. However, this rate may change after a certain number of billing cycles.
Secured cards
Consumers can use secured credit cards with little or no credit history. Secured credit cards require a security deposit to be issued. The limits are usually equal to what the consumer deposits. The card is a great way to improve your credit score.
Reward cards
There are many different reward programs. They include cash back rewards, which give a percentage of your purchase amount; points cards that allow you to accumulate points for other merchandise; retail rewards; and gas cards with rebates or points on gas purchases. Companies often use these credit cards to increase brand loyalty.
Brand cards
Closed-loop cards can only be used at certain retail stores or gas stations. They can be bundled with certain benefits that allow users to select unique financing options for a specific amount spent on one purchase or choose a cash-back rebate option.
Fleet or fuel cards
Companies with a car fleet use them to carry out business operations. Employees can use them to pay for fuel at authorized gas stations and auto repair shops and purchase vehicle maintenance. Fleet cards make it easier to manage fuel and driver expenses.
Travel cards
These credit cards work in a similar way to reward cards. To encourage loyalty, they are co-branded by various travel brands, including airlines, hotels, cruise companies, and rental car agencies. These cards offer perks beyond free nights or miles, such as priority boarding, an upgrade to a better travel class, the exclusion of ancillary charges, and discounts for guests.
P-cards are cards that allow for the purchase or procurement of goods and services.
P-cards are business credit cards that allow employees to make payments electronically for goods and services without going through an official purchasing request or approval procedure. This card can save time for your employees by streamlining the purchasing process. The P-card can include features such as reports for allocating expenses, business rewards, and higher credit limits.
Student Cards
You should apply for emergency credit cards before sending your child to college. These cards are usually lower-interest and can teach your student responsibility while building credit.
How to choose a credit card type
Some cards on the list may suit you, but others require further research. Some consumers and companies are non-revolvers. Each time they receive a credit card statement, the balance is paid in full.
Some revolvers have a balance and may only make the minimum or slightly above the minimum amount each month. This could result in them paying interest on the compensation they carry forward. Some credit card users choose to do both. They pay off one debt while maintaining a second balance.
Consider the following factors when shopping for a new credit card:
- Consider why you want a credit card and how it can work (earning points, racking up miles, building credit, paying off debt faster).
- Find out if the interest rate is variable or fixed. Find out if there are different interest rates for purchases, cash advances, and balance transfers.
- Check if you can waive the annual fee.
- The grace period for payment can typically range between 20 and 30 days.
- Be sure to avoid yourself or your company going into debt by being financially responsible.
