Credit cards are one of the most common forms of payment. Odds are you’ll find at least one credit card in nearly every wallet. A credit card can be an invaluable tool. With it, you can make purchases and pay for them later, which gives you increased flexibility. When used responsibly, a credit card can help you manage your money and expenses.
But no two credit cards are the same. There are different types of credit cards, different qualification and application requirements, and different benefits that come with each card. So, it’s important to understand what, exactly, you’re signing up for when you open a new credit card.
Teerasak Ladnongkhun / ShutterstockWho Can Get a Credit Card?
Just about anyone can apply for a credit card. But in order to actually receive a credit card, you’ll have to go through an application process and be approved.
In order to get a credit card, you’ll need to be at least 21 years old or 18 years old with a parent’s permission and verifiable income. Once you fill out a credit card application, you may be required to meet other standards or provide verification. The process can include factors like:
- Showing proof of citizenship;
- Verifying that you have a source of income, and;
- Having a credit history or credit score.
All of these different pieces of information will help credit card companies determine your risk and creditworthiness. Anyone who meets the criteria or requirements for a specific credit card during the application process can get approved.1
Types of Credit Cards
There are many different types of credit cards. In fact, there are special credit cards designed just for specific types of users. That’s why it’s important to carefully consider the type of credit card that’s best for your finances and spending habits.
Different people use their credit cards in different ways. Some people might only use credit cards for large purchases. Others might use their credit cards for everyday purchases. Business owners might need a credit card that can be used to pay daily expenses. Different types of credit cards can be better suited for these kinds of activities.2
The following are some of the most popular types of credit cards.
Rewards Credit Cards
Rewards credit cards give users rewards for making purchases. These rewards can come in the form of cashback, travel miles, hotel points or dollars, store credits or discounts, and even rotating rewards. You might earn rewards on every purchase or for buying items from certain types of shops.
These credit cards often include annual fees and high-interest rates. So, it’s important to assess whether the rewards are worth the costs.
Credit Builder Credit Cards
A credit builder credit card is meant to help you build a credit history. As such, it’s an ideal choice for anyone with a limited credit history, low credit score, or who might be seen as “high risk” by lenders.
While these cards do come with low credit limits, over time they can show other lenders that you’re reliable, pay bills on time, and are responsible with your credit.
Balance Transfer Credit Cards
A balance transfer credit card is a great card for anyone who already has a credit card that’s carrying a high balance. With a balance transfer card, you can rollover an existing credit card’s debt onto a new card with a low-interest rate for a limited period of time.
These credit cards can make it cheaper and easier to pay down credit card debt.
Purchase Credit Cards
Purchase credit cards typically offer an initial interest-free period for new cardholders. Therefore, this type of credit card is perfect for anyone who needs to make a big purchase.
You can buy an expensive item and won’t pay any interest for a limited period of time. Interest begins to be charged after this introductory period ends. At this point, your purchase credit card will work like any other credit card.
Money Transfer Credit Cards
A money transfer credit card allows you to borrow cash through your credit card.
As a cardholder, you can transfer money from your credit card directly into your personal bank account for a small fee. You’ll then repay that money on your monthly credit card statement.
Some transfer cards can offer no- or low-interest rate introductory periods as well.3
The Benefits of Using a Credit Card
Having a credit card can be quite handy – especially if you’re using a credit card that rewards you for your purchases. However, many people are hesitant to open a credit card because of the risk that comes from racking up high monthly payments and interest charges.
Yet there are plenty of positives to carrying a credit card in your wallet.
Credit Cards Offer Rewards
Many credit cards now offer rewards of some kind. Whether it’s a small percentage of cashback on every purchase, travel rewards, or cash back bonuses on certain purchases, rewards are one of the most valuable benefits for credit cardholders.
Additionally, some credit cards can come with even more little-known rewards. Your card might provide:
- Free airport lounge access;
- Priority airline boarding;
- Insurance;
- Reimbursement for certain expenses, and;
- Concierge service.
Responsible Credit Card Use Builds Credit Scores
If you use your credit card responsibly, you can increase your credit score. Responsible credit card use includes:
- Making your payments on time;
- Not building up a significant amount of debt, and;
- Paying significant portions of your balance each month.
Responsible credit card use can help by showing an on-time payment record and having available credit. These are both factors that can positively impact your credit score and how lenders view your credit history.
Credit Cards Include Fraud Protection
A bank card can’t protect you and your money from fraud in many cases. However, a credit card can.
Almost all reputable credit cards offer fraud protection in some form. So, if someone steals your card and charges all kinds of purchases on it, you won’t be held accountable. You won’t have to pay for or be liable for any unauthorized charges or fraud. That can provide great peace of mind with the prevalence of identity theft today.
Credit Cards Offer Purchase Protection
Your credit card can offer a kind of protection that even a warranty may not offer. In fact, it can protect items that you wouldn’t otherwise be able to get a warranty for.
Most credit cards provide purchase protection, which means you can file a claim if the items you purchase are damaged or stolen. This can protect both you and your finances from having to deal with frustrating return policies if the unexpected happens when you make a purchase.4
How to Apply for a Credit Card
Are you ready to add a new credit card to your wallet? You can apply for a new card at any time. But before you begin filling out the application, it’s a smart idea to do your research.
Make sure you’re applying for the right kind of card by researching the different types available. Certain cards might be better than others for your specific financial needs. You should compare a few different credit cards by assessing their annual fees, interest rates, and any rewards benefits. You can also look into what’s needed to qualify for each credit card to see which you’ll be eligible for.
With this research, you’ll be prepared to apply for the credit card that’s best for you.