Credit Cards, Charge Cars and Everything In-Between - A NO CAP Guide
Credit cards have evolved from a straightforward financial product to a complex one over time.
To begin with, they were standardized and simple, with each issuer creating one card with a specific set of features. But their transition has been phenomenal.
Today, credit cards come with different metal standards, varying interest rates, reward programs, fees as well as several other features.
So, before you apply for one and fill a form, you must know which type provides the best fit to your needs and financial status.
Standard "Plain-Vanilla" Credit Cards
"Plain-vanilla" credit cards have some standard features sans rewards and frills. There is nothing complicated about them.
Even a layperson can understand how they work. Go for such a card, if you are not interested in earning any reward points.
This card provides for a revolving balance with a credit limit. When you make a purchase using a credit card, the balance credit amount reduces. You will find the amount restored when you pay it back to the issuer.
At the end of the month, the issuer levies a finance charge on the outstanding balance amount. You are liable for late payment penalties when you fail to pay a minimum payment before the due date.
Balance Transfer Credit Cards
Several credit cards provide a facility to transfer balances.
However, a balance transfer credit card comes with a low introductory rate feature on balance transfers for a specific period.
This card is especially useful when your existing card balance bears a high-interest rate.
The card has some attractive features, but you often need good credit to qualify for it. The balance transfer interest rates on this card vary.
A zero percent rate usually requires a minimum of two transactions every month. The card becomes more attractive when offered with a lower promotional price (and a more extended promotional period.)
Rewards Credit Cards
This credit card, as its name suggests, rewards the user on purchases made using the credit card.
Cashback, points, and travel are the three basic kinds of reward cards. User preferences determine the choice of card.
Some prefer points that can be redeemed for purchases or cash, while others prefer cash back on purchases. Frequent travelers find travel cards more useful to enjoy free flights, travel perks, and hotel stays.
Student Credit Cards
Most students are unlikely to have a credit history and may not qualify for a credit card.
This gap is filled by student credit cards that make it easy for college students to apply for one. While de-emphasizing credit history, many student card issuers insist on enrollment in an accredited university as a precondition.
These cards offer incentives like a bonus for good grades, low interest on balance transfers, rewards for payment on time, but it is necessary to prove eligibility to get a card.
People with excellent credit history find it easy to get charge cards. While they do not have a pre-set spending limit, the balance payment must be paid fully at the end of the month.
They do not have features like a minimum payment or finance charge. Late payments result in charge restrictions, fees, or even card cancellation according to conditions of the card agreement.
Secured Credit Cards
People with a low credit score or with poor financial history can use an option of secured credit cards.
You pay a security deposit to get a card. The credit limit equals the security deposit made. A higher credit limit is provided in certain situations, such as a major default on a mortgage payment.
Whatever the case, the cardholder needs to make the monthly payments on the secured card balance. The credit line details are reported to the Consumer Reporting Agencies.
Subprime Credit Cards
These credit cards target borrowers that don't have a good credit history.
With high-interest rates and fees, the cards do not come cheap and have confusing terms. Approvals are often quick. The Federal government rules govern subprime credit card issuers regarding the charges.
However, issuers take advantage of the loopholes to get around the rules. Unfavorable terms do not seem to deter people from applying for these cards because they are unable to get credit from other sources.
A cardholder loads money upfront onto the card and uses a prepaid card.
The card's balance reduces as soon as a purchase takes place and with it the limit. The limit gets renewed only after loading more money.
A prepaid card removes the need for finance charges as well as minimum payment conditions. You use a card to make payments so long as a balance is available.
By definition, these cards are not credit cards, and you do not build credit score using these cards. While akin to debit cards, they are not linked to your account.
Most people who prefer prepaid cards use them to limit their purchases to match their spending power.
Limited Purpose Cards
Limited purpose credit cards are, in a way, usable at specific locations. Examples of such cards are gas credit cards and store credit cards used for day-to-day purchases, and they have features such as finance charges and minimum payment.
Users can raise their credit scores through the responsible use of these cards.
Business Credit Cards
Business people use these cards to run and grow their enterprise. These cards are designed for business use and enable them to segregate their official transactions from personal ones.
A business cardholder’s personal credit history is an essential aspect because they bear the responsibility of credit card balance. These cards are available in the form of charge cards and standard business credit cards.
When you decide to get your first credit card, take a review of your needs and financial situation. Check which types of cards are available and what their unique features are. When it comes to getting a credit card, it’s crucial to be prudent and aware of all the terms and conditions.