Types of Credit Cards: Understanding Different Credit Card Types

Credit cards are an integral part of modern financial life, offering a convenient way to make purchases, earn rewards, and manage cash flow. Over 16% of the global population own credit cards (about 1.25 billion individuals). In the US, over 82% of citizens have at least one of them.

However, not all of them are created equal. Different types of credit cards are designed to cater to various consumer needs, preferences, spending habits, and financial situations. Whether you strive to earn rewards, build credit rating, manage debt, or cover business expenses, there is an option to match your individual scenario. By differentiating between types of credit cards, you can make a more informed decision and leverage the benefits of their offers to enhance your financial well-being.

Rewards Credit Cards

We start our list with this type for a reason. Out of all types of credit cards, rewards ones are among the most coveted financial tools for those who want to benefit from their everyday spending. According to an Ipsos study, over 71% of Americans have rewards credit cards and nearly 70% use them specifically for rewards.

Unlike standard credit card types, they provide various reward options that include cash back, points, or travel miles. The reward program structure can vary significantly. Some ensure a higher bonus in a specific purchase category or categories (e.g., groceries, gas, dining). Meanwhile, others come up with flat rates on all purchases.

The biggest benefit of the rewards credit cards is that they give you a return on your purchases, thus providing a consistent direct discount. Many also entail substantial sign-up bonuses if you meet a spending threshold within a certain period, let alone additional perks, such as purchase protection, extended warranties, and travel insurance.

On the negative side, though, rewards cards tend to have higher interest rates and charge annual fees, which can offset the bonuses earned if not used effectively.

All in all, this type is useful for individuals who pay off their balance in full each month to avoid high-interest charges and regularly spend in the card’s reward categories.

Cashback Credit Cards

With different kinds of credit cards available, cashback ones stand out for simplicity and direct benefits. They are created to return a percent of your spending as cash in the form of statement credits, direct deposits, gift cards, or checks. Cashback rewards are easy to understand and redeem, with no limitations or restrictions on use.

However, to justify your cashback earnings, you should check the APR and annual fee, which might linger at the higher end of the price range. If you are not going to carve into a credit line too often and prefer straightforward bonuses, a cashback option is for you.

Travel Rewards Credit Cards

With these, you can earn points or miles that can be redeemed for travel-related expenses, such as airline tickets, hotel stays, and car rentals. They often come with travel-specific perks, such as free checked bags, priority boarding, and airport lounge access. As such, they are ideal for frequent travelers who enjoy planning trips and are comfortable navigating the complexities of reward redemption.

Business Credit Cards

There are different credit cards not only for individuals but also for businesses. Since companies have larger expenses and need more capital to manage operations, business credit cards typically offer higher limits. Many have established rewards programs specifically beneficial to businesses, such as cashback on office supplies, travel rewards, and discounts on business services. They are often “equipped” with tools and software for accurate and easy tracking and managing business expenses.

There is a lot to like about them for business owners:

• They help in keeping personal and business expenses separate, which is crucial for accounting and tax purposes;
• They help build a business credit history, which can be beneficial for securing future financing;
• They allow streamlining and reducing business costs by providing bonus and loyalty programs;
• They offer an opportunity to issue additional employee cards.

Things to consider about them include:

• Hefty interest rates and fees;
• Personal liability that might put your individual assets at risk;
• Potential impact on personal credit score.

Small Business Credit Cards

Business cards embrace different options for businesses of all sizes, from larger corporations to startups and small businesses (SMBs). Credit cards for SMBs are designed with unique challenges and requirements of SMB operations. Thanks to tailored reward programs, SMBs can save on operational costs. In the meantime, special management and tracking tools attributed to them can help tackle budgeting and financial planning difficulties.

While assisting in improving both business and personal credit profiles, this type often requires personal guarantees from business owners and gives lower limits that might fall behind the fluctuating capital needs of some companies.

Student Credit Cards

If you wonder, “What are the credit card types for younger individuals new to credit?” look no further than student credit cards. Tailored to the financial situations and needs of the younger generation and college students, they:

• Have no strict credit score requirements and flexible qualification rules;
• Help build a credit history, which is crucial for future financial endeavors like renting an apartment, getting a car loan, or even securing a job;
• Often come with low or no annual fees and may have lower interest rates;
• Provide financial education resources to help students learn about credit management and personal finance.

Secured Credit Cards

Have you been denied other types of credit cards in the USA due to poor credit scores or lack of credit history? With this card, you’ll get a chance to re-build or improve your credit rating. Available to all types of borrowers, they call for a compulsory cash deposit to secure against the risk that you won’t be able to pay your debt out. The deposit is usually up to $500, and the credit limit is tied to the deposit amount. On the bright side, regular reports to major bureaus along with responsible use enable for enhancing credit history pretty quickly.

Co-Branded Credit Cards

Among different credit card types, this one is issued by a financial institution in partnership with some brand to offer specific rewards or benefits associated with that brand. Those can be discounts, exclusive access to events, priority services, and other unique incentives.

Normally, co-branded cards can be used anywhere, yet their perks are most beneficial when used with the partner brand, making them less versatile than general rewards credit cards.

Airline Rewards Credit Cards

Issued in collaboration with specific airlines, they provide rewards primarily in the form of airline miles or points that can be redeemed for flights, seat upgrades, and other travel-related expenses. Other advantages cardholders may enjoy include priority boarding, free checked bags, access to airport lounges, and even sign-up bonuses in the form of free flights or generous discounts.

Hotel Rewards Credit Cards

Teaming with the most popular issuers, many global hotel networks and smaller ones offer bonus points that can be redeemed for free nights, room upgrades, and other hotel services. Complimentary breakfasts, late check-out, free Wi-Fi, and elite status within the hotel’s loyalty program are also on the list of attractive benefits.

Store-Specific Credit Cards

Store or retail credit cards are issued by bigger outlets to attract and retain customers. They are usually only useful at the issuing retailer's stores or their affiliated brands. Some are co-branded with major networks like Visa, Mastercard, or American Express, which makes them good anywhere those networks are accepted. At the same time, reward points, cash back, discounts, and promotional financing options are still only available in specific stores.

Many options of this type have less stringent approval criteria compared to general-purpose credit cards. As such, they are accessible to individuals with lower scores and are apt for building credit. A few great examples of credit cards among retailers are Amazon’s Prime Visa, Target Circle, My Lowe’s Rewards, Costco Anywhere Visa, Capital One Walmart Rewards Mastercard, etc.

0% APR and Balance Transfer Credit Cards

Are you looking to consolidate and pay down high-interest credit? Do you plan a large purchase and need short-term no-interest borrowing? Whatever the case, these will come to help, ensuring the benefit of paying no interest for a specified introductory period that typically ranges from 6 to 21 months. After the intro period, a regular APR is applied, which might appear above average. A balance transfer feature at 0% APR allows saving on managing existing debt and reducing the overall cost of borrowing.

To qualify for 0% APR cards, you should have a good to excellent credit rating. In return, you’ll get an opportunity to improve your financial situation with the temporary relief a high-interest debt.