Credit cards and how to use them
Author:
Debbie Dragon
3 Types of
Credit Cards Every
credit card on the market has advantages and disadvantages to using it. There are hundreds of different credit cards offered, but we will explore three different
types of cards in this article and help point out who benefits the most from each type of card, as well as the potential advantages and disadvantages of each.
Secured
Credit Cards If you've ever had difficulty with your credit card use in the past, or you've had trouble repaying your financial obligations you may be limited to a secured credit card option. Secured credit cards are not the appropriate choice for someone who has reasonably
good credit, because they have higher interest rates and fees than a traditional
credit card.
Advantages of Secured Credit Cards: If you fall into the below average category of credit scores and payment histories, but want a second chance at rebuilding a good credit score for your future – the secured credit card category gives you that opportunity. If you do a little comparison shopping before applying, you can find a secured credit card that reports your payment history to the three credit bureaus- which is exactly what you want them to do. This way, you can make payments on the card responsibly and be credited for your new and improved financial habits through a repaired credit score.
Secured credit cards may also be an option for someone who does not have a credit history yet – someone who has just moved into the country, or a young adult just out of school for example.
Disadvantages of
Secured Credit Cards: Being a “secured” card means that you have to put down a cash deposit in order to get the card. This deposit is what makes it secured. You can expect to pay between $100 and $250 for a secured credit card application. In addition to making a deposit to obtain the card, you'll also likely have to pay high interest rates in comparison to non-secured cards on the market. Most secured cards also charge an annual fee for the privilege of using them, so if you are only able to get approved for secured cards, be sure to compare the cards in this category before selecting to try and find the one with the lowest annual fee, lowest deposit required and lowest interest rates.
Rewards Credit Cards
People who prefer to do most of their spending and purchasing on a
credit card each month, and who are diligent about paying their balance off in full each month are the best candidates for a rewards card. In fact, a rewards card quickly becomes unrewarding if the user does not have financial discipline to pay it off in full each month, so weigh your decision carefully when considering a
rewards card.
Advantages of
Rewards Credit Cards Depending on the rewards card you choose, you can earn cash back on each purchase, travel discounts or free travel, or points towards merchandise based on how much you spend on your card. People who use a card all month long for all expenditures and pay them back in full each month can quickly build up rewards and really get more for their dollar than people paying with cash or non-rewards cards.
Disadvantages of
Rewards Credit Cards Some rewards cards come with high annual fees that actually end up costing as much (or more) as what you earn in rewards. If a reward card has high interest rates and you are unable to pay your balance off in full each month to avoid paying the interest, chances are you will pay more in interest than you earn in rewards, as well. Another disadvantage to some rewards cards is they don't always make it easy to redeem your earned rewards, so be sure to understand the policies of the program.
Low or No Interest Credit Cards
Pretty much anyone who wants to pay existing debt down or keep their credit card purchases at reasonable interest rates would enjoy a low or no interest
credit card.
Advantages of Low or No Interest Credit Cards
During the low or no interest period on a
credit card, more of your payment goes toward paying off the balance and less to the interest. If you can secure a balance transfer card with no interest, you can save a fortune in interest if the card that currently holds the balance has a high interest rate.
Disadvantages of Low or No Interest
Credit Cards Most cards with very low or 0% interest are only temporary rates. Once the promotional period ends the card interest rate goes up to the normal APR which can be between 10 and 18%, depending on the card. Also, if you make a payment late to one of these cards once during the promotional period, you will immediately be charged the higher rate and lose out on the interest free period.
Note:
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