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With so many different types of credit cards available, how do you know which card is right for you? One offers the chance to earn thousands of airline miles, while another lets you transfer a balance and pay 0% interest for a time; yet another lands you 15% off purchases with certain retailers. Which one do you choose?
The many types of credit cards are tailored to fit different consumer needs, and each card has its own unique appeal. The right one for you is the one that helps you responsibly meet your financial needs while providing the best possible value. You'll need to consider your credit score, how you plan to use your card, what rewards (if any) you're likely to earn and what you're willing to pay in interest and fees.
Following is an explanation of several types of credit cards—how they work and for whom they work best. Have your credit score at the ready and read on.
Rewards Credit Cards
Rewards cards earn you points, mileage or cash back when you make purchases. You'll find a galaxy of choices when looking for a rewards credit card. In some cases, card issuers operate their own rewards programs, such as Chase Ultimate Rewards or American Express Membership Rewards. In other cases, card companies partner with airlines, hotels or retailers to offer in-brand rewards and promotional perks. Either way, the more you use your card, the more you earn—whether you're redeeming points for cash back or cashing in on travel rewards.
The Good: When you use a rewards credit card to make purchases, you can get cash back or other rewards without more effort than it takes to apply for the card and start using it. Some rewards cards come with a very uncomplicated cash back rewards structure, such as the Capital One Quicksilver Cash Rewards Credit Card, which earns a flat 1.5% cash back on every eligible purchase you make. Or, you may choose a card like the Capital One® Walmart Rewards® Mastercard® that lets shoppers earn 5% cash back on their Walmart.com purchases, as well as 2% cash back on restaurant and travel purchases and 1% back on purchases everywhere else Mastercard is accepted.
The Score: Generally, a FICO® credit score of 700 or above is a good place to start.
The Fit: Rewards cards are a fit for people who use their credit cards frequently and/or for large purchases. If you travel a lot, especially if you use specific airlines or hotels repeatedly, the boost in miles or points certain cards provide can be lucrative. The same applies to retail-branded rewards cards: Frequent shoppers with certain retailers see the greatest benefit. Rewards cards are also good for people who don't mind learning the system to earn points faster or get enough travel rewards to take that vacation you've been daydreaming about. In the end, these cards reward people who are dedicated enough to learn how programs work—and who have enough purchases to make cash back or rewards worthwhile.
The Caveat: Rewards cards do a great job of incentivizing you to use your credit card. But if you're trying to limit your credit card use—either because you're carrying large balances or you're trying to avoid carrying a balance—this might not be the best approach for you.
Premium Rewards Cards
Premium rewards cards have the flashiest perks. For example, the Capital One Venture Rewards Credit Card offers a 60,000 bonus mile reward when you use the card to spend $3,000 in the first year you have it. The mileage bonus is worth about $600. Additionally, the card comes with a variety of perks, including an application fee credit of up to $100 on TSA Precheck or Global Entry applications.
The Good: The rewards and perks you'll find with premium rewards cards are undeniably enticing.
The Score: You'll need a very good to exceptional FICO® credit score.
The Fit: Premium rewards cards are best for experienced card users who are already spending a lot using credit cards. They're also a good fit for super consumers of a particular brand. If you travel extensively and prefer to stay at Marriott hotels, for example, the Marriott Bonvoy Brilliant™ American Express® Card can provide some generous rewards. This card will earn you 75,000 points when you use it to spend $3,000 in your first 3 months. Additionally, it earns 6 points for every eligible dollar you spend on the card directly with a participating Marriott Bonvoy hotel, and an elevated earnings rate on purchases made with U.S. restaurants and airlines. Terms apply. Because interest rates on premium rewards cards can run high, they're best for cardholders who pay their balances in full each month. If you typically carry a balance, the interest and fees you'll pay may outweigh the value of your rewards.
The Caveat: These cards aren't the best bargains when it comes to interest rates and fees. On the Capital One Venture Rewards Credit Card card the annual fee is $95. But annual fees on premium rewards cards can be pricey—such is the case with the Chase Sapphire Reserve®, which charges a $550 annual fee. Another thing: You shouldn't apply for a premium credit card, or any other card for that matter, if you'd need to increase your spending just to reach a rewards goal.
Credit Cards for Big Purchases or Transferring Debt
Sometimes saving money on interest is enough of a reward on its own. If you tend to carry a credit card balance or you have a significant amount of existing credit card debt, finding a card with a low interest rate or with an introductory 0% APR offer for purchases or balance transfers might be the best value for you. Before exploring these options, however, make sure you're managing your finances carefully and aren't stuck in a cycle of debt. These cards can help you save money, but will work against you if they simply encourage you to get deeper in debt.
Balance Transfer Cards
Balance transfer offers let you finance your existing credit card debt for little to no interest, for a period of anywhere from six to 18 months.
The Good: Cards with balance transfer offers often don't come with lavish rewards. But if you're trying to manage existing card debt or want economical access to revolving credit, these may be the most financially advantageous options for you.
The Score: You'll typically need good credit to qualify for balance transfer offers and cards with 0% promotional interest or a low ongoing rate. Card issuers want to know that you present a low credit risk, since they're allowing you to transfer a balance at a low rate.
The Fit: Balance transfer cards work well for those with existing credit card debt and good credit looking to reduce their interest. If you're looking for a balance transfer card, consider the Citi® Double Cash Card - 18 month BT offer from our partner, which gives you 18 months to pay off your balance without accruing any interest, with your APR climbing to a variable 13.99% to 23.99% once the introductory period ends. This card also has the added benefit of earning 1% cash back when you make a purchase, plus an additional 1% as you pay for your purchases. However, you will be charged a balance transfer fee of 3% or $5, whichever amount is greater.
The Caveat: You'll likely have to pay a fee of 3% to 5% on balance transfers, so do the math to ensure that a transfer will actually save you money.
0% Introductory APR Cards
Paying less interest is always a good thing, and a card with an introductory 0% APR period will give you a potentially lengthy period of time to make purchases and avoid paying interest.
The Good: Introductory 0% APR cards give you the option to finance large purchases, and can be a money-saving option over loans of a comparable amount as long as you have a plan to pay it off by the end of the zero-interest period. When you use a 0% intro APR credit card, monitor how your purchases compare to your credit limit, as a high balance can affect your credit utilization, which is an important factor in your credit scores.
The Score: Good to excellent credit is typically required for cards that offer a 0% APR introductory period.
The Fit: If you're looking for a credit card with a 0% APR introductory period, consider the Chase Freedom Unlimited® card, which provides a 0% APR on purchases for 15 months. Once the 0% intro period is over, the card's standard ongoing rate will climb to 14.99% to 23.74% variable, depending on your creditworthiness and other factors. Another perk is that this card comes with generous rewards, including 5% cash back on travel purchases through Chase Ultimate Rewards, 3% cash back on dining at restaurants and drugstores, and an elevated 1.5% base rewards rate on all other eligible purchases. You can even earn a $200 bonus if you spend $500 with the card in the first 3 months you have it.
The Caveat: Because introductory offers expire eventually, make sure to read the fine print to understand how long the 0% APR period lasts, and what interest rate you'll pay once it expires.
Credit Cards for Students, Bad Credit or Establishing Credit
What if you're just starting out—or starting over? Some credit cards are designed specifically to help students, new credit users and people with bad credit who are trying to build back.
College students with limited income and credit histories can use student cards to help establish and build credit. Rewards, benefits and credit lines on student cards tend to be modest, but they'll often beat rates and fees on subprime cards, and have additional perks over paying with cash or debit. Credit cards can come in handy during college, whether for emergency expenses or managing cash flow. They'll also help you learn the ropes of managing debt. Students who use their cards responsibly during college can graduate with a bit of credit history and a good credit score to show for it.
Secured Credit Cards
Secured credit cards can open the doors for people with bad credit or no credit history. A secured card requires a security deposit that the card issuer will keep if you default on the account. You might, for example, be approved for a secured card with a $1,000 limit but will need to put up $1,000 in cash that the card issuer will use to cover a balance you fail to pay. Secured cards can be a great way to establish credit. As long as you keep your credit utilization down and pay your bills on time, a secured card can help you build your credit score and history. You'll typically get your security deposit back if you close the account in good standing or upgrade to an unsecured card through the same issuer.
Overall, people who are applying for credit cards with bad credit tend to find a different range of options from people with good to excellent credit. Interest rates may be higher; fees may be higher as well. But starting small and managing wisely is a solid way to build up. The OpenSky® Secured Visa® Credit Card, for example, doesn't require a credit check to be approved, and reports all payment information to the credit bureaus, which can help you establish and build your credit.
Retail Credit Cards
Some retailers offer their own store credit cards. Nordstrom and Macy's are two examples. These cards can be either "open-loop" cards, meaning they can be used anywhere, or "closed-loop" cards that only work for purchases made with the retailer in question. You can't, for instance, use your closed-loop Target REDcard™ Credit Card at the local gas station. With the best of these cards, you may get access to special rewards, discounts and promotions. On the other hand, interest rates can be high and any late payments you make will be reported to credit bureaus. Get the details to decide whether these are worth the effort of getting and maintaining an additional card, especially one that limits you to a certain retailer.
Charge cards differ from regular credit cards by requiring cardholders to pay off their entire statement balances in full every month. American Express is currently the only major card issuer that offers charge cards. While having to pay your entire balance off every month may not sound appealing, it can be a useful mechanism for managing your money: You get the convenience of a card without the potential for racking up debt.
Business Credit Cards
Getting a designated business credit card can help you maintain the separation between business and personal finances. Many come with useful tracking and reporting features. Rewards cards may incentivize business-related purchases, such as office supplies or advertising. If you use a business credit card to manage large transactions each month, you may be able to generate some significant rewards. For many business owners, having a business credit card available can make cash flow issues easier to handle.
Small business cards function very much like consumer credit cards. Small business owners often rely on personal guarantees and credit to make purchases and keep their business going. Your personal credit history and score may also determine which small business card is best for you. Large companies, government agencies and nonprofits may qualify for corporate cards, which grant lines of credit to an organization and not the individual business owner. Corporate cards rely on—and affect—business credit and may not be available to independent contractors, freelancers and other small enterprises.
Other Types of Cards
A few other types of cards are worth mentioning:
Virtual credit cards stand in for your regular card credentials when you want to make secure transactions. These "disposable" account numbers route transactions through your regular credit card account, but allow you to hide your actual account number. Virtual cards are available through many providers, including from Citi cards and through Capital One's Eno program. You can also sign up for third-party services such as Privacy to create a virtual card number for your existing account.
A prepaid card is loaded with cash and can be used for purchases until the balance reaches $0. You can purchase them loaded with predetermined dollar-amounts such as $50 or $100, or you may get a card that allows you to reload it and transfer money onto the card. Either way, a prepaid card allows you to pay just as you would with a credit card, only there is no credit attached.
Prepaid cards are a useful alternative for people who don't have credit cards. They can feel less risky than a traditional credit card, or even a debit card: If your prepaid card is compromised—or the card itself is lost—the only funds at risk are the dollars you've loaded onto the card. A thief can't access any personal information or tap into your line of credit. Unlike a secured credit card, however, a prepaid card won't help you build credit when you're just starting out. But it can be a good stand-in for a credit card and is easy to get for anyone with cash.
Cards for Kids
If your child needs a payment card for emergencies, you have a few different options. Prepaid cards can be a wise way to go, or you can make your child an authorized user on your credit card account. If your child is 18 or older, you can also help them apply for their own credit card, which will help them build credit in addition to providing a convenient way for them to pay.
Greenlight is a debit card for kids that comes with a variety of parental controls. Using the Greenlight app, parents can instantly send funds to their kids' accounts, set spending controls, receive transaction alerts, turn cards on and off and more. Greenlight isn't a credit card, but it gives kids access to many of the payment functions a credit card has, along with a few digital safeguards for parents.
What's in the Cards for You?
Choosing a credit card can seem like quite a responsibility. But in reality, the wealth of available choices means you're more likely to find a card that fits your individual needs. If you'd like to browse options that are personalized to your credit score and preferences, Experian CreditMatch™ can help you find the credit cards that might work for you.
All information about the Target REDcard™ Credit Card has been collected independently by Experian and has not been reviewed or provided by the issuer of the card.