Secured Credit Cards
Secured credit cards are designed for people with bad credit or no credit history. With a secured card, you make a cash deposit when you open the account, and that amount typically becomes your credit limit. For example, you might make a $500 deposit to achieve a $500 credit limit. It’s easy to get approved for a secured card because there is little risk for the credit card issuer; you’ll only be able to spend what you’ve already deposited. When using a secured card, you should only make a few small purchases each month and always pay your bill on time. You can expect to be able to qualify for an unsecured card after one to two years of responsible use. Some secured cards allow you to upgrade directly to an unsecured card with the same issuer. Whether you close your account after paying in full or upgrade your account, you’ll get your deposit back. Keep in mind that some secured cards are better than others. Some issuers charge annual fees in addition to the deposit, while others may provide you with a credit limit that exceeds your deposit. Compare your options carefully when choosing a secured credit card to build credit.Student Credit Cards
Student credit cards are aimed at helping young people establish a credit history. They come with few or no perks and lower credit limits, but they’re much easier to qualify for than a typical unsecured credit card, especially if you’re over 21. If you’re under 21, you’ll typically need to provide proof of independent income to qualify. You don’t necessarily need to be attending school to be eligible for a student credit card, but each issuer has different requirements. When using a student credit card, keep your credit utilization low by making payments multiple times per month. Also be sure to pay your statement balance on-time each month. Setting up autopay is a great way to ensure you don’t forget.Retail Credit Cards
Retail cards tend to be easier to qualify for than regular unsecured cards, but they come with some drawbacks. They can usually only be used at one store or family of stores, and rewards are typically less flexible than with a regular cashback card. Still, if you shop at one particular department store frequently and you’re looking to build credit, a retail credit card can be a great place to start. Some retailers offer lucrative, one-time discounts when you sign up, and some offer additional perks like ongoing discounts throughout the year.Charge Cards
Charge cards require that you pay your entire balance each month. You won’t pay interest on a charge card, but you’ll be subject to late fees or restrictions if you don’t pay your bill in full. These cards offer less flexibility but can also be less risky if you’re the type to carry a balance on a credit card. Charge cards prevent you from becoming too overwhelmed with outstanding credit card debt.Business Credit Cards
Whether you’re a small business owner with employees or a freelancer, a business credit card can help you track your business expenses separately, allow you to earn rewards on different categories related to your business needs, and provide more spending power than a personal credit card. Business credit cards often come with lucrative welcome bonuses and allow you to distribute cards to your employees. In most cases, credit card issuers will check your personal credit score and your business credit score when determining your eligibility for credit. And depending on the issuer, they may report to the three major consumer credit bureaus, or they may only report to the commercial credit bureaus. When you apply for a business credit card, you may be required to provide information like your industry, years in business, and annual revenue. You may also be required to sign an agreement stating the card will not be used for personal expenses.0% Introductory APR Credit Cards
Some credit cards come with an interest free period on purchases that typically lasts between 12 and 18 months. These cards can be helpful if you’re trying to finance a large purchase, such as a new home appliance. For the introductory period, you can carry a balance without racking up interest charges. But you should have a plan to pay off your balance before you start accruing interest on the card. Otherwise, when the introductory period ends, you’ll start paying interest on the entire balance.Balance Transfer Cards
Balance transfer cards are a type of 0% introductory APR credit card that don’t charge interest on balance transfers for a period of time, typically 12 to 18 months. These cards are designed for debt management, since you can save money on interest by transferring a balance from another credit card. Most of these cards still charge a balance transfer fee, however, so do the math to ensure you’ll still be saving. While you may be able to find a credit card with a $0 balance transfer fee, most issuers charge between three and five percent of the transfer amount.Cashback Credit Cards
Cashback credit cards and other rewards cards are more difficult to qualify for than student cards or retail cards, but issuers have a range of credit standards. Some unsecured cashback cards are easier to qualify for than others. Cashback credit cards allow you to earn statement credits, gift cards, or checks as you spend money with your card. Different cards have different rewards structures. Some offer straightforward cashback on every purchase, typically between one and two percent, while others allow you to earn boosted rewards on certain categories. For example, some cashback cards offer a higher rewards rate for groceries, dining out, or entertainment. Others have rotating bonus categories that allow you to earn more cashback in certain categories each quarter.Travel Rewards Credit Cards
With a travel rewards card, you’ll earn points or miles with every purchase that can be redeemed towards travel. Some cards allow you to transfer your points to airline and hotel loyalty programs, others require you to book your trip through the issuer’s travel portal, and still others allow you to cover your travel expenditures with rewards after the fact. Many travel rewards cards also offer the flexibility to redeem your points for cash or gift cards instead. And most travel rewards cards also come with additional travel perks like rental car insurance and a travel concierge. If you plan on traveling abroad, you should opt for a travel rewards card with no foreign transaction fees.Premium Rewards Credit Cards
Premium rewards cards come with annual fees and are often the most difficult credit cards to qualify for. However, for people who spend enough to offset the fee, the rewards associated with these cards go above and beyond your typical no annual fee credit card. They offer boosted rewards on multiple popular categories, like travel, dining, and groceries. Some of these cards include airport lounge access, offer a variety of free memberships, or provide a credit towards travel expenses each year. Premium rewards credit cards are not intended for people with fair credit or no credit history. When applying for a premium rewards card, make sure the benefits line up with your needs and check your credit score before signing up.Using Credit Cards Responsibly
While credit cards can be a great tool for managing cash flow, they can also be risky. Credit cards usually come with high APRs— the average as of May 2021 was 14.61 percent for all accounts. If you don’t pay your balance in full every month, you can rack up interest quickly, and your debt can become unmanageable. Follow these tips to ensure you don’t end up drowning in debt.- Choose the right card: Compare rates, terms, rewards, and perks across credit cards, and only apply for a card if you’re likely to be approved based on your credit score. Otherwise, you’ll take an unnecessary hit to your credit score.
- Use it like a debit card: Whenever possible, use your credit card like a debit card, and only spend money you’ve already earned. If you need to finance a large purchase, be sure you have a plan to pay off the balance as quickly as possible.
- Make on-time payments: Your payment history is the important factor influencing your credit score, accounting for 35 percent of your FICO score. Set up autopay to ensure you never miss a credit card payment, and be sure to keep a budget to ensure you’ll have sufficient funds in your account when your due date arrives.
- Pay the full balance each month: If you only make the minimum payment on your credit card each month, you’ll rack up interest charges fast. Pay the entire statement balance by the due date to avoid accruing too much debt.
- Keep your debt balance low: Your credit utilization ratio, or the amount of available credit you’re using, accounts for 30 percent of your FICO score. If you have a low credit limit, you may want to make payments multiple times per month to keep your utilization below 30 percent. If you’re aiming for a really high score, you should attempt to keep your credit utilization ratio below 10 percent.
- Avoid closing old accounts: You may need to close an account to avoid an annual fee, but in general, you should keep your old accounts open. If you’re applying for a secured card, opt for one that allows for an upgrade to an unsecured card so you won’t need to close your account. The length of your credit history accounts for 15 percent of your score.
- Check the accuracy of your statements: Mistakes happen, so be sure all the charges on your monthly statement are accurate. If you notice fraudulent charges, report them right away. Most issuers will not hold you liable for unauthorized charges.
- Monitor your credit: As you make on-time payments and keep your debt balance low, keep an eye on your progress. Many credit card issuers offer credit monitoring tools, and you can also get a free copy of your credit report from www.annualcreditreport.com. It’s also good practice to regularly check for inaccuracies in your report.