Before you apply for your first credit card or your next one, you should know the pros and cons of each type of credit card. There’s a reason why credit cards are categorized into different types, because they give different features and each one have different advantages and disadvantages.
The four basic types of credit cards you should know about are the zero- or low-interest, rewards, secured, and the student credit cards. Below are the basic pros and cons of each of the types.
Zero Interest, Low Interest and Balance Transfer Cards
The zero or low-interest cards, give you the ability to pay very little or no interest for a period of time. These cards do have time limits on them and other conditions to protect the credit card company. Sometimes the low rate applies to balances transferred from another credit card. These are called Balance Transfer Cards.
Pros of a Zero Balance Card
The advantage of the zero-interest type of credit card is, of course, credit card companies are lending you their money for zero interest. You don’t have to worry about finance charges ballooning your balance since the card doesn’t charge an interest. If they do charge an interest, they charge only very minimal rate.
Cons of a Zero Balance Card
The disadvantage is that the zero or a low-interest rate only lasts for a limited period of time, usually less than a year. After that the company will charge you their regular rate. They only offer zero or low-interest rate card for an introductory period.
You should choose a Balance Transfer card only if you seriously intend to pay down your credit card balances. Click here to see the Top Rated Balance Transfer Cards.
Rewards Credit Cards
The next type of credit card is the rewards credit card. The name says it all about this type of credit card because it gives rewards to the owners if they frequently use the card to pay for their expenses or even for every purchase made using the card. This type is best for people who use credit cards in almost all their expenses and have no problem meeting their monthly credit card bill.
Pros of a Rewards Credit Card
The bottom line advantage of this credit card is that you get money back for every purchase you make in this card. Some cards give points depending on the amount of purchases you make. You can redeem the accumulated points later in exchange for cash, goods, or even credit card balance. Other rewards credit cards gives discount for every purchase. Frequent flyers can also get free mileage from their reward credit cards.
Cons of a Rewards Credit Card
The disadvantage of this type of credit card is that it often has unreasonably high annual fees. It often has huge interest rate also. Credit card companies that offer rewards credit cards give low interest rate at first but dramatically increase it after the introductory period. Make sure you ask your company whether the rate is variable or not. The rewards offered in this type of card, too, are limited. They are limited in terms of the period of redemption and the method of redemption. Be sure you read the fine print before you apply for the card.
Choose this type of credit card if you consistently use your card for purchases (such as business expenses) and pay your balances down consistently. Click Here to see the Top Rated Rewards Credit Cards.
Secured Credit Card
Another type of credit card fit for people who want to establish credit for the first time or those who want to reestablish lost credit worthiness is the secured credit card type. You can get this card by depositing some amount to the issuer of the card, which is usually a bank. Base on this amount, you’ll be given your credit limit.
Pros of a Secured Credit Card
The main advantage of this card is that it’s available to those who have no credit rating to begin with or those who have lost it due to nonpayment. This type of credit card is tracked by business bureaus that establish your credit rating. In other words, if you want to repair a damage credit rating, then this card is for you.
Cons of a Secured Credit Card
The disadvantage of this type of credit card is that is has a high interest rate compared to the other types. In addition to the interest, this card also has high annual fees. Be aware also that you could incur balance higher than your initial deposit because your initial deposit only serves to offset whatever balance you have left in case your account is closed.
You should choose a secured card if you are ready to rebuild your credit history. Click here to see the Top rated Secured Credit Cards.
Student Credit Cards
The last type of credit card is designed for college and even high school students if they can get their parents to co-sign the application. Credit card companies realized that students were an untapped customers, and began offering credit cards to students with little or no experience managing credit.
Pros of Student Credit Cards
For a responsible student, a student credit card could give them numerous benefits. You can use your student credit card to establish your credit score since this is usually the first credit card you will own.
Pros of Student Credit Cards
The major advantage of student credit card is that you are given a means to obtain financial help in times when they need it most. A student credit card comes in handy in emergency situations, or when activity comes up that needs money in short notice. Because your parents co-sign and therefore supervise your spending, student cards can give you an opportunity to learn how to handle credit and financial responsible with a solid safety net backing you up.
Cons of Student Credit Cards
But since the person handling the card is relatively new to this source of money, some find this opportunity overwhelming and may not handle the situation well. This is the major cause of disadvantage for this type of card. College can be a stressful enough time as it is, and the financial consequences of mismanaging credit can often make things worse.
You should choose a student credit card if and only if you are ready for the financial benefits, and responsibilities, that come with it. Click here to see the Top rated student credit cards.
At the end of the day, you should remember that credit cards are not the same and the terms and conditions of the issuers are not the same, too. The original purpose of a credit card is to aid in the convenience of using money. Knowing the differences between each type of credit card, and their corresponding pros and cons can make all the difference.