9 types of credit cards and how they work

Credit cards have many benefits, from helping you manage ongoing expenses to earning great rewards to reaching financial goals, such as building an excellent credit score. You have many credit card options to choose from so you can find the right type of credit card for you.

Fortunately, you can help ease the process by narrowing your options to just a handful of types of credit cards, then choose from the types that suit you. To help you determine the right credit card for you, we’ve outlined nine types of credit cards, how they work, and their most common use cases.

9 different types of credit cards and their uses

It may seem like you have virtually limitless credit card options. However, all those credit card choices generally fall into nine categories. Let’s review each credit card category, their differences, and their primary use cases so you can more easily find the best credit card for you and your personal finances.

1. Secured credit cards

Most credit cards you come across are unsecured, requiring no collateral. However, secured credit cards require a cash security deposit equal to the credit limit. So, if you get a $500 credit limit on a secured credit card, the credit card company won’t issue the credit card until you’ve provided a $500 security deposit.

This security deposit covers the bank if you rack up charges and don’t repay the amount you charged.

So, what’s the point of a secured credit card? These credit cards are for people with no established credit history or those with bad credit looking to rebuild their credit score. A secured credit card is often one of the first credit cards someone gets unless they become an authorized user on someone else’s credit card account.

Remember that some secured credit cards also charge an annual fee.

2. Student credit cards

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Student credit cards are accounts geared toward college students. Because they target college students with little to no credit history, the big difference between them and other cards is they have looser approval requirements. And unlike secured credit cards, student cards are unsecured cards and don’t have a security deposit.

Other than the looser credit approval requirements, student credit cards work a lot like any other credit card. They may offer student-centric perks, reward points, cash back, or airline miles. Some may even offer extra bonuses for good grades and other educational accomplishments.

Like a secured credit card, a student credit card is a go-to option as your first credit card to help establish your credit history and build a good credit score. This may help you get approved for loans from other lenders for a home or car in the future.

3. Rewards credit cards

Rewards credit cards generally give you points based on your spending habits. For example, a credit card company may offer one point for every dollar spent on the card.

Sometimes, a credit card rewards program will offer more points if you spend in a bonus category. For example, most purchases might earn one point for every dollar spent, but purchases at gas stations will earn five points for every dollar spent.

Some cards may have a set bonus category (like gas stations) that earn more points, while other cards may change the bonus category each month or quarter. For example, you might earn more points on groceries from January to March but then earn more points at restaurants from April through June. 

Once you earn enough points, you can redeem them for various rewards. These rewards can include merchandise, gift cards, travel, hotels and other accommodations, cash back, and even statement credits.

These can be great credit cards to use regularly, as long as you use them responsibly and pay off the entire amount owed each month. By doing this, you’re paying off the card within the interest grace period, so you’ll receive all your rewards points and pay no interest on the charges you made during that billing cycle.

Some reward credit cards have an annual fee, particularly those with high-value rewards and perks, but you can find some without annual fees as well.

When shopping for a rewards credit card, check out the rewards categories and amounts, then compare that to your everyday purchases. You don’t want the highest rewards tier to align with a category you never shop in.

4. Cash-back credit cards

Cash-back credit cards are a lot like rewards credit cards. The key difference is instead of offering you points for every purchase, it gives you back a percentage of each dollar you spend on the card. 

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Like rewards credit cards, cash back values may vary based on the spending category. For example, you may get 1% cash back on all purchases but 5% bonus cash back at grocery stores. The bonus category may also change monthly or quarterly.

You can redeem cash back in various ways. You can receive the cash in your bank account, as a check in the mail, or as a statement credit on your account. Sometimes, you can even redeem cash back rewards for merchandise, travel and accommodations, and gift cards.

Most cash-back credit cards will not have an annual fee. However, like rewards credit cards, you may run into this fee if the credit card has high cash-back value or valuable perks.

When shopping for a cash-back credit card, check out the categories and percentages, then compare that to your spending habits. For example, you wouldn’t want a card with a high cash-back percentage on fuel purchases if you don’t use a car.

5. Travel rewards credit cards

Travel rewards credit cards are a subset of a rewards credit card but deserve a category of their own. These credit cards offer rewards, but they tune these rewards toward travel. Typically, you’ll earn rewards faster when you use the credit card for travel-related purchases, such as airline tickets, rental cars, and hotels. Many travel credit cards allow you to score some of the same perks as other rewards cards, and then often attach higher reward values to travel-related items.

Some travel credit cards will allow you to connect to your airline or hotel loyalty program and earn points there too. This lets you stack your rewards points for even more value.

Travel credit cards also have more travel-focused perks than other credit cards. These can include free TSA PreCheck and Global Entry, access to exclusive airport lounges, free rental car insurance, no foreign transaction fees, priority boarding on some airlines, exclusive hotel perks, and more.

These types of credit cards are great if you travel often. Otherwise, many of the perks will go unused.

Travel credit cards may or may not have annual fees. And the ones with annual fees can sometimes get very high — upward of $500 annually. So that’s something to consider if you’re interested in a card with travel perks.

6. Co-branded credit cards

Co-branded credit cards will have a specific store or brand attached to them, but they’ll also have a regular credit card issuer, such as Capital One, Citi, or Chase, attached to them. They’ll also be a part of a widespread network, such as American Express, Visa, or Mastercard.

These cards often give you access to exclusive perks at the store or brand they’re affiliated with, such as special financing options, discounts, free upgrades, and extra loyalty points. However, since they are also part of a larger credit card network, you can use them anywhere that network is accepted, not just at the brand or store listed on the card.

Co-branded credit cards typically lack the basic rewards or cash back that more general credit cards offer, but they give enhanced rewards and other perks for the store or brand they’re associated with. 

An example of these rewards would be a $10 gift certificate to the store or brand for spending $200 on your card. This makes them a great option if you frequently shop at that store or brand and can use these rewards. 

These types of credit cards typically have no annual fee.

7. Store credit cards

Store credit cards, similar to co-branded credit cards, are affiliated with a specific store, retailer, or brand. However, they lack the broader Visa, Mastercard, or American Express network and only work at the store or brand they are affiliated with. This is also known as a closed-loop credit card because it only works in one store. 

A store credit card offers perks and rewards specific to the store or brand, such as special financing offers, additional discounts, points toward valuable coupons, and more.

Because these types of credit cards have limited use, they are only beneficial if you frequently shop at the store or brand it’s associated with and regularly use the perks they offer.

Some brands will offer both co-branded and store credit cards. For example, Sephora offers two credit card options. The Sephora Credit Card (a store credit card) can only be used for purchases at Sephora, but the Sephora Visa Credit Card (a co-branded card) can be used wherever Visa is accepted as payment. Similarly, the clothing brand LOFT offers a LOFT credit card (a store credit card) that can be used to make purchases at Ann Taylor or LOFT. They also offer a LOFT Mastercard (a co-branded card) that can be used anywhere that accepts Mastercard for payment.

8. Business credit cards

Business credit cards are exactly what their name says — they are for business owners who want to keep their business and personal expenses separate. They also allow a business to issue cards to certain employees who may need access to the account. For example, a person responsible for paying all invoices and bills may receive a credit card.

Business credit cards can also fall into the rewards, cash-back, or travel categories.

Having a business credit card can help a business better track its expenses and pay bills and other expenses throughout the month while awaiting payments from customers to come in. Then, at the end of each month, the business can pay off the credit card balance to avoid interest charges and still reap the rewards or cash back.

To get a business credit card, you must run an income-producing business, such as owning a small business, freelancing, or being an independent contractor. Without a business or side hustle, this type of credit card is not for you.

9. Balance transfer credit cards

A balance transfer credit card isn’t really a type of credit card. Instead, it is a promotion that many types of credit cards offer. This is when the credit card allows you to transfer an existing balance from another credit card and charges you low interest or no interest for a fixed term — often six to 18 months. 

To take advantage of this offer, though, you’ll typically have to pay a balance transfer fee. This balance transfer fee is generally 3% to 5% of the transfer amount. So, if you transfer $1,000, you may incur an additional $20 to $50 fee.

If you pay off the balance transfer credit card within the promotional term, you can save big on interest charges. But if you fail to repay it within the term, you’ll start incurring interest charges on the remaining rate at the balance transfer credit card’s standard annual percentage rate (APR), also known as its interest rate. 

All types of credit cards for all types of consumers

The credit card industry is highly competitive, so they offer all types of credit cards with various perks to fit varying types of consumers. Whether you love to travel, frequently shop at a specific store, or love getting cash back for everyday expenses, there’s a credit card out there for you.

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