Different types of credit cards

If you’re considering a credit card, it’s helpful to understand what’s available and how different types of cards work. There are a lot of cards you might apply for. And they can serve different purposes.

This guide to credit card types can help you get started.

What you’ll learn:

• There are many types of credit cards, including cash back cards, travel cards, student cards and secured cards.

• Understanding the different types of credit cards can help you explore your options and decide which might be a good fit for you.

• Applying for a credit card can temporarily affect your credit scores. 

• Seeing whether you’re pre-approved lets you check for offers before you apply without harming your credit scores.

Generally, credit cards all function similarly. They allow cardholders to borrow against a credit line. How much credit a person has available goes up and down based on several factors, including purchases and repayments.

But there are still differences from card to card. Credit cards fall into several categories, and it’s possible for cards to be of multiple types. The Capital One Savor card, for example, is a rewards card offering cash back with no annual fee. View important terms and disclosures. 

Here are some different credit card types.

Cash back credit cards often reward everyday spending on things like groceries, gas, dining, entertainment and other bonus categories. For every qualifying purchase, cardholders earn a percentage of what they spend.

Some cards might offer a flat reward rate for all purchases. Others might offer higher rewards for categories like groceries or entertainment. Redemption options for cash back rewards might include statement credits, checks or gift cards.

Travel credit cards allow cardholders to earn rewards, like miles. You might come across two types of travel rewards credit cards.

• General travel rewards cards: These cards aren’t associated with any particular airline or hotel. This may give you more freedom to choose how to redeem your rewards. For example, you may not be limited to booking with a single airline. Or you might be able to redeem rewards for cash back or gift cards.

• Co-branded travel rewards cards: These cards are often jointly offered through a credit card issuer and a specific airline or hotel. When it comes to purchases, these cards typically function like any other credit card. But rewards may be limited to the airline or hotel associated with the card.

Travel cards may have other benefits as well. For example, some eligible Capital One travel rewards cards like Venture Rewards and Venture X offer statement credits for TSA PreCheck® or Global Entry application fees, access to airport lounges and annual travel credits.

With this type of card, instead of cash back or miles, rewards are offered as points. Like other rewards, points redemption options can vary depending on the issuer.

Store credit cards are affiliated with a specific merchant. When you use them at the store or website they’re affiliated with, you could earn additional discounts or rewards. There are two types of store credit cards that can be great financial tools when used responsibly.

• Private-label credit cards: These can usually be used only at the store and specified store affiliates. 

• Co-branded credit cards: Like traditional credit cards, these can typically be used anywhere—even outside the merchant and its affiliates.

Secured credit cards require a security deposit to open an account. The deposit acts as collateral for the line of credit and is usually refundable. Cards that don’t require security deposits are called unsecured cards.

When used responsibly, secured credit cards can be a great tool to build credit. Some secured cards even offer rewards. And because they’re backed by collateral, secured cards are typically easier to get approved for than unsecured cards.

Student credit cards are tailored to college students, who often don’t have an established credit history. Because of this, student cards can be easier to qualify for. Plus, they offer perks and benefits that may be more relevant to students.

To qualify for a student card, you have to be at least 18. If you’re under 21, federal law requires a co-signer or proof that you’re able to make regular payments. You might also have to prove you’re enrolled at a four-year university, community college or other higher education institution.

Some credit cards offer low or 0% introductory rates. 

Introductory rates must last at least six months, but they can sometimes last longer. During that time, you can focus on paying down your account balance. That’s because you may not have to pay much—or any—interest, depending on the promotional period and rate.

When the introductory annual percentage rate (APR) expires, the standard APR kicks in. The standard APR will apply to both your current balance, if you carry one over, and future card balances. Depending on your card’s terms and conditions, it could kick in early if you are late with payments or exceed your credit limit.

When you transfer a credit card balance, you move an existing balance from one card to another—ideally at a lower interest rate. But you usually can’t transfer a balance to a card from the same credit card issuer. 

Transferring balances to a card with a lower rate could help you pay less interest. It could also help you consolidate debt or combine multiple balances into one, which could simplify payments.

But keep in mind that a balance transfer could come with fees that might affect potential savings. According to the Consumer Financial Protection Bureau, balance transfer fees are typically a fixed amount or a percentage of the amount you transferred—whichever is higher.

No annual fee means you won’t be charged a fixed annual membership simply for having the card. But there may be other credit card fees or interest and finance charges, depending on how you use the card.

If you’re interested in a card and it has an annual fee, it could still be worth it if the perks and rewards outweigh the fee.

Whether you’re opening a small business or freelancing on the side, a business credit card can be useful if you’re an entrepreneur or a business owner. One reason is that it can help keep your business and personal expenses separate. 

It might also come with benefits like rewards and bonuses. Plus, having a business credit card can make tax time easier if all your spending is tracked in one place.

Charge cards function similarly to credit cards. You might see them offered for business purposes instead of personal use. Unlike a credit card, charge cards don’t usually come with a set spending limit. Instead, charge card accounts are often approved based on your financial history and your spending and payment habits. But there’s typically a fee to use the card.

Cardholders typically have to repay the balance on a charge card in full each month or when they get their statement. That means balances aren’t carried over to the next month. And missing payments could mean late fees or other penalties.

Now that you’re familiar with some of the most common types of cards, how do you choose the best credit card for your needs? Here are a few things to think about before applying.

Your credit history plays a role in which cards and terms you qualify for. Typically, applicants with higher credit scores qualify for better terms, such as higher spending limits, lower introductory rates and elevated rewards. But if you’re working to improve your scores, you may want to focus your search on a card you can use to build credit.

You can monitor your credit score and access your TransUnion® credit report for free with CreditWise from Capital One. It’s free for everyone, and using CreditWise won’t affect your credit scores. You can also get free copies of your credit reports from AnnualCreditReport.com.

If you want to consolidate credit card debt, you could consider a balance transfer card with a low or 0% introductory APR. If you’re interested in earning travel rewards, then a miles card might be appealing. 

Generally, you can use any type of credit card to build credit. But that’s only if you use your card responsibly by doing things like paying statements on time every month.

Some cards come with annual fees. And things like missed payments can result in fees or other penalties, but those are avoidable with responsible use. Before you apply, be sure you understand potential costs.

Finding the right credit card may take patience and research. But getting familiar with the different types of cards and how they work can help you make your decision.

If you’re new to credit or searching for your next credit card, Capital One can help. 

• See if you’re pre-approved for credit cards without harming your credit scores. 

• If you’re looking to build your credit with responsible use, explore cards for people with fair credit. 

• Earn unlimited 1.5% cash back on every purchase, every day, with a cash back rewards card. 

• Monitor your credit report and score with CreditWise. It’s free for everyone, and using it won’t hurt your credit.