10 Different Types of Credit Cards and How It Works?

types of credit cards
Different types of credit card

In a world where different types of credit cards are marketed to consumers, one may get confused at the availability of credit card types to choose from. You don’t necessarily need to know all these credit cards in the market.

The most important thing is to find the type of credit card that best suits your need. Then channel your mental energy into researching which of those fits in best.

In this article, I listed 10 different types of credit cards. Let’s look at how each of them works, and how to choose the right type of credit card for you.

10 Different Credit Card Types

How do you identify the type of credit card that would best suit your need? You may want to consider the credit card types outlined below and how each of them works.

  1. Rewards credit cards
  2. Standard credit cards
  3. Balance transfer credit cards
  4. Students credit cards
  5. Business credit cards
  6. Secured credit cards
  7. Charge cards
  8. Store credit cards
  9. Co-branded credit cards
  10. Subprime credit cards

Rewards Credit Card

Just like the name indicates, Reward credit cards are the type of credit card that gives you point or cash back based on a certain percentage of your spending using the credit card.

And the cool thing here is some even offer bonus points in popular categories like groceries, gas, and dining out.

Rewards credit cards also tend to provide a few different ways to redeem your points. Often including options for gift cards, statement credits, or merchandise.

This makes them a great credit card type for your everyday expenses when you know you can pay off your card right away.

Using a rewards credit card to make your basic purchases like household supplies, and groceries enables you to earn cashback and travel rewards for purchases you needed to make anyway.

There are 3 basic types of rewards cards

  • Cashback Reward Credit Card: If you’re looking out for credit cards that offer some percentage of cash reward for making purchases with their credit card, cashback credit is the right way to go
  • Points Reward Credit Card: If earning points that can be used for your groceries, dinner, gas, etc. is what you’re looking forward to using a credit card, a points reward card is a great credit card type to go for.
  • Travel Reward Credit card: If you’re looking for a credit card that rewards you for travel-related expenses, a travel reward credit card is a great credit card option for you.

Some people prefer cash back rewards, while others like points that can be redeemed for cash or other merchandise.

I recommend the travel rewards cards for frequent travelers because of the ability to earn free flights, hotel stays, and other travel perks. You would want to earn rewards in areas you spend more in.

Standard Credit Card

Standard credit cards are types of credit cards that offer no rewards or frills. They are nicknamed “plain-vanilla” credit cards because they don’t offer any reward or frills while using them.

They’re quite easy to understand. You might consider choosing this type of credit card if you’re not interested in earning rewards and you want a card that isn’t complicated.

Standard credit cards allow you to have a revolving balance up to a certain credit limit. If you used up your credit when you made a purchase, more credit will be made available once you’ve made a payment.

A finance charge is applied to outstanding debts at the end of each month. Standard credit cards have a minimum payment that must be paid on or before a certain due date to avoid late-payment penalties.

Balance Transfer Credit Cards

While loads of credit cards come with the ability to transfer balances, a balance transfer credit card is a credit card type that offers a low introductory rate on balance transfers for a certain period.

If you want to save some pretty cool cash on a high-interest rate balance on an existing card, a balance transfer card would be a great deal.

Balance transfer card interest rates vary with some having are as low as 0 percent interest rate.

Note: The lower the promotional rate (and longer the promotional period) the more attractive the card is. However, you’ll often need good credit to qualify for a balance transfer card.

If you are owing some high-interest credit card debt, you may be considering using a balance transfer credit card to help manage and pay down that debt.

The best balance transfer cards offer an introductory 0 percent APR for a period of time usually between 15 and 21 months. Which gives room for a nice break from paying interest charges while you focus on paying down your debt.

Most cards require you to pay 3 to 5 percent balance transfer fee upfront.

However, there are some credit cards with no balance transfer fee. Even, after taking the balance transfer fee into account, you could save a reasonable amount of cash on interest during your credit card’s introductory APR offer.

Students Credit Cards

Student credit cards are a type of credit card designed specifically for college students with the understanding that these young adults often have little or no credit history. The application requirements aren’t stringent so it’s easy to get approved.

You would have an easier time getting approved for a student credit card than another type of credit card as a first-time applicant.

Student credit cards often come with additional perks like a low-interest rate on balance transfers or rewards. Most student credit card offer many bonus perks for each dollar spent as well good grades and don’t charge an annual fee.

Signing up for a student credit card can help young people build their credit and start creating good financial habits, if used responsibly

 Note: Students generally have to be enrolled at an accredited four-year university to be approved for a student credit card.

Business Credit Cards

Business credit cards allow cardholders to keep their business and personal expenses separate while they earn rewards on all their business spending. In other words, business credit cards are specifically for business use.

A good business credit card helps you benefit from your everyday spending and makes running your business easier.

Generally, Business credit cards allows you to exchange your rewards for either cashback or airline miles. Even for a business credit card, your personal credit history matters since the credit card issuer still needs to hold an individual accountable for the credit card balance.

We made an article on how to apply for a business credit card, you can check it out here.

Note: Business credit cards can also be cashback credit cards, general rewards credit cards, travel credit cards, or even secured credit cards. For you to qualify for a business credit card, you need to have a business or income-producing activity.

Secured Credit Card

Secured credit cards are an option for people who don’t have a credit history or who have damaged their credit status.

Most credit cards are unsecured, which means you don’t need to put down a collateral before you can qualify for the card

With secured credit cards, on the other hand, you’re required to put down a cash deposit (security deposit) in order to secure a small line of credit, usually for a similar amount. For example, you might sign up for a secured credit card and put down a $1000 initial deposit in order to receive a $1000 line of credit.

The one-time deposit in most cases is your credit card limit. Secured credit cards are the easiest type of credit card to be approved, so they are helpful for first-time applicants. And those who want to repair their credit after a financial hurdle.

Although putting down collateral may not seem the best option, secured credit cards are the easiest type of credit card to get approved for.

To know more about secured credit cards and what differentiates it from regular unsecured credit cards, we have made this article just for you, check it out here.

Note: you’re still expected to make monthly payments on your secured credit card balance.

Charge Cards

Charge cards are credit card types that do not have a preset spending limit and balances must be paid in full at the end of each month.

Charge cards do not have a finance charge or minimum payment because you need to pay the balance in full. Depending on your card agreement, late payments can attract a fee, charge restrictions, or card cancellation.

Note: You typically need to have a good credit history in order to qualify for a charge card.

Store Credit Cards

Store credit cards are types of limited-purpose credit cards offered through retail stores to let consumers charge their purchases and pay them off over time.

Store credit cards are generally only used within the specific store that offers them, though some store credit cards can be used within a specific network of stores.

Generally, store credit cards have higher interest rates than general-purpose cards, and they are often more likely to charge deferred interest.

But if you don’t payoff the full balance within that time, you’ll be charged retroactive interest.

Bottom line, if you can pay off your store credit card on time, you may be able to take advantage of some great rewards programs and perks.

Co-branded Credit Cards

Co-branded credit cards are store or brand credit cards offered through traditional card issuers like America Express, Citi, or Chase.

These can include hotel credit cards that let you earn points within a hotel loyalty program or airline credit cards that let you earn miles within a specific frequent flyer program.

Some co-branded credit cards do partner with retail stores, although you can typically use them for non-store purchases as well.

The rewards offered by co-branded credit cards are generally limited to one brand. But their rewards are solid and in many cases, the value of these rewards (like free hotel nights) can be worth more than cashback.

Subprime Credit Cards

Subprime credit cards are one of the worst types of credit cards. These credit cards are mainly for applicants who have a bad credit history and these cards typically have high-interest rates and fees.

While approval is often hassle-free, even for those with bad credit, the terms are often confusing.

The Federal government has made rules as to the amount of fees subprime credit card issuers can charge. But the card issuers often look for loopholes in these rules and sort ways to skirt these rules.

Although the subprime credit card is unattractive, some consumers still apply because they can’t get credit elsewhere. Consumers who choose subprime credit cards do so at their own risk.

How To Choose The Right Type Of Credit Card

The steps listed below will help you in your quest in figuring out the best type of credit for you

Check Your Credit Score

First, you have to check your credit score to see how many credit card offers you’re eligible for.

A high credit card score literally means you are going to be eligible for many credit cards with reward perks. But when you have a fair or poor credit card, you would want to consider applying for a secured credit card to boost your credit score.

Because you will be limited in the number of credit cards you can apply for if you have a low credit score.

Identify The Type of Credit Card You Need

There are three major types of credit cards:

  1. Card that helps you improve your credit
  2. Cards that save you money on interest.
  3. Cards that earn you a reward.

There’s no best type of credit card, we would prefer saying the right type of credit for you. Because the best type of credit card is the one that best suits your need.

For example, if you love traveling, you would want to consider going for a credit card with travel reward perks. If you’re looking forward to improving your credit score, going for a secured credit card is a great idea.

If you’re a college student and want to build your credit score, a student credit card is great. But if you have a lot of high-interest credit card debt or debt from other loans, I suggest you go for r a balance transfer credit card that allows you to consolidate your debts during an introductory APR period.

Apply For Credit Card Type That Offers The Best Value

If you’re applying for a credit card, you should consider choosing a card that offers the best value to you. Compare the advantages and disadvantages of each card and choose the right type of credit card for you.

If you’re going for a reward credit card, make sure you know which credit card provides your desired rewards. These rewards can be cashback rewards, credit card points, travel rewards.

You may want to consider choosing a credit card that offers rewards in the categories you spend most.

Compare Credit Card Fees

Before choosing a credit card, you should have prior knowledge of the credit card fees and long-term carrying costs. Knowing the credit card interest rate is not enough.

Before applying for a credit card, you should check out the annual fees, application fees, late fees, over-the-limit fees, and any other fees that you would be required to pay.


There is no one best type of credit card in the world. The best credit card is the one that serves you right. Before applying for a credit card, you should consider following the steps outlined in this post to assist you in choosing the right credit card for you.

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