8 types of credit cards and what each is best for

A credit card can help you earn cash back, collect travel rewards, separate business expenses or build credit. But these categories often overlap: A cobranded card can also be a travel rewards card, while a business or student card may earn cash back.

Understanding the differences can make it easier to choose the best credit card for your needs. Here are eight common types of credit cards, how they work and what to consider before applying.

Cash-back credit cards

Cash-back credit cards offer a percentage of the purchase amount back on charges made with the card.

Some cash-back cards offer an elevated earning rate for specific bonus categories, such as drugstores or gas. Others offer a flat rate on all card purchases and a few entice cardholders with rotating bonus categories that change quarterly.

Depending on the exact card, you can usually redeem the cash back you earn as a statement credit, a direct deposit into your bank account or a gift card. That makes your rewards exceptionally easy to use.

Many cash-back cards charge no annual fee, although some cards with higher bonus rates charge one.

Examples of cash-back credit cards include:

• Blue Cash Preferred® Card from American Express (cash back is received in the form of Reward Dollars that can be redeemed as a statement credit and at Amazon.com checkout)
• Chase Freedom Unlimited® (see rates and fees)
• Citi Double Cash® Card (see rates and fees)

Rewards credit cards

Rewards credit cards offer some form of cash back, points or miles on all purchases, and many offer bonus rewards on specific categories such as dining or groceries.

Depending on the program, cardholders may be able to redeem rewards for statement credits, gift cards or travel. Transferable rewards cards may also let you transfer (or convert) your credit card rewards to participating airline and hotel partners.

Rewards cards are best for people who want multiple redemption options. Cards with transferable points can be particularly useful for travelers who want access to several airline and hotel programs instead of being tied to one brand.

Some examples of rewards cards include:

• American Express® Gold Card
• Bilt Obsidian Card (see rates and fees)

Travel rewards credit cards

Travel credit cards earn rewards that can help offset travel expenses. Most travel rewards credit cards will offer bonus rewards on travel-related purchases and many also come with substantial perks that make your travel experience more convenient or more comfortable.

Some travel cards offer transferable points, such as American Express Membership Rewards or Chase Ultimate Rewards points. These points can be transferred to other participating rewards programs.

Some travel cards have no annual fee, though most carry fees ranging from $95 to $895. Higher annual fees usually translate to more comprehensive perks, such as TSA PreCheck or Global Entry benefits, airport lounge access, complimentary travel-related insurance coverage and elite status with a specific hotel chain.

Some top travel cards include:

• American Express Platinum Card® ($895 annual fee; see rates and fees)
• Capital One Venture Rewards Credit Card ($95 annual fee)
• Chase Sapphire Preferred® Card ($95 annual fee; see rates and fees)

Cobranded credit cards

Cobranded credit cards involve partnerships between well-known brands and credit card issuers, like Alaska Airlines with Bank of America.

These cards earn rewards in the partner brand’s loyalty program, making them especially useful if you already participate. For example, airline cobranded cards will let cardholders earn points or miles with their specific frequent flyer program.

Cobranded airline credit cards may include other benefits such as a free checked bag, priority boarding and airport lounge access, whereas cobranded hotel credit cards include perks such as free nights, elite status and statement credits.

Some examples of cobranded credit cards include:

• Chase Air Canada Aeroplan® Credit Card (see rates and fees)
• Marriott Bonvoy Boundless® Credit Card (see rates and fees)

Store credit cards

Store cards are issued through partnerships between retailers and credit card issuers and may offer shopping discounts, program rewards or financing options for purchases at the named retailer.

Closed-loop store credit cards can only be used at the issuing retailer (or its affiliated brands), making them best for loyal shoppers who spend regularly with one chain.

Other retail cards are open-loop, though, and can be used elsewhere. Typically, retail cards that carry a network logo (such as Visa or Mastercard) can be used anywhere that the card network is accepted.

Retail cards may offer cardholders a 0% annual percentage rate (APR) or deferred interest plans when spending at a specific store.

Some examples of store credit cards include:

• Costco Anywhere Visa® Card by Citi (see rates and fees)
• Prime Visa

The information for the Prime Visa has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

Business credit cards

Like personal cards, business credit cards offer varying rewards, such as points, airline miles or cash back, and can be further divided into categories such as travel or cash-back credit cards.

If you are eligible to apply for a business credit card, your business expenses can also earn rewards. And many business credit cards offer bonus rewards in business-related spending categories, such as advertising, internet services and office supplies.

Of course, a key reason to have a business credit card is to keep track of your business expenses and avoid mixing business and personal transactions.

Some top business cards include:

• Capital One Venture X Business
• Delta SkyMiles® Reserve Business American Express Card
• Ink Business Preferred® Credit Card (see rates and fees)

Student credit cards

Student credit cards are beginner credit cards made for young people who have yet to establish their credit.

As such, student credit cards are fairly easy to obtain; however, don’t be surprised if you are approved with a low credit limit. The issuer may raise your limit over time if you demonstrate responsible use, such as on-time payments.

Most student credit cards do not have an annual fee and offer fairly limited rewards such as cash back on purchases or a bonus for good grades.

After graduation, some issuers will let you hold onto the student card indefinitely, while others may offer a path to convert your account to a non-student credit card.

Secured credit cards

Secured credit cards are designed for borrowers with poor or limited credit history who want a credit card but cannot be approved for an unsecured one. Secured credit cards require you to provide money up front to be used as collateral before the issuer will extend a credit limit.

The funds are held in a secure account that you cannot access until you either close the credit card or qualify for an unsecured credit card.

For example, if you want a secured credit card with a $500 credit limit, most issuers will require a $500 deposit. If, at some point, you are unable to pay off the balance, the issuer can use the deposit to clear your debt.

Secured credit cards report your payment history to the credit bureaus, making them ideal for those looking to build or rebuild their credit, potentially after a difficult financial situation (such as bankruptcy).

Bottom line

For most people, a no-annual-fee cash-back card is a practical starting point: It offers straightforward rewards without an ongoing cost.

If you travel regularly, compare the value you’ll get from a travel rewards card’s benefits against its annual fee.

And if building or rebuilding credit is your priority, focus first on eligibility, fees and payment reporting rather than rewards.

For rates and fees of the Amex Platinum, click here.

Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

Source: thepointsguy.com