Most of us have a credit card and for some of us, we could be using a card that is really not that suitable for us. Cards differ a lot and so it is worth taking a look at the different types of cards in order to see which might be the very best for you. Once you understand the differences between the cards it will help you to be able to be better at picking one that is more suitable for you.
Types of Card
Interest free card – an interest free card is exactly what it says. It is a credit card which charges no interest. While this sounds fantastic, it is worth noting that the cards will only be interest free for a fixed period of time, usually up to six months and they will then start to charge interest. The interest tends to be charged at a very high rate, once it does come in. There are usually charges for balance transfers and cash withdrawals on the card as well, so it is worth looking at the terms carefully and thinking about what you will be using it for, before applying. The interest free credit card can be extremely useful if you are intending on using it while the interest is free and then paying it back in full once the interest kicks in. You could save a lot of money doing this, However, if you do not intend to pay it back once the interest kicks in, then the sensible thing would be to do a balance transfer to a cheaper card.
Low interest card – a low interest card is most suitable for anyone who intends to not repay everything they spend on the card. If you do not repay the full balance each month, then interest will be charged. In order to keep these charges as low as possible it is wise to choose a card with low interest rates. Then you will not be paying more out on interest than necessary.
Cash back card – these cards will pay you a percentage of what is spent on the card in cash. The money that you are paid will be added to the card so that you will be able to spend it the following month. Although these sound really good, you do need to be wary. The interest rates on the cards could be higher than cards which do not offer cashback and so if you are not repaying the full balance every month you could end up paying more, even taking the cash back into account, compared with a standard credit card. It is worth looking at the rates and calculating which would be cheaper.
Reward card – a reward card is very similar to a cash back card but you get some sort of reward rather than cash when you use the card. This can be good if the reward is something that you would normally buy or use. However, if it is not, then it just may not be worth getting the card. You could end up spending more on it to try to earn the reward and like the example above, the interest rates could be higher with a conventional card.
Store card – a store card is a specific type of credit card which you can only use in certain shops. These therefore are limited in where you can use them. They will offer advantages to the user, such as shop discounts or preview sale evenings. However, they can be dearer than standard credit cards and as you can only use them in limited shops, it can be tempting to shop there even if you can get items cheaper elsewhere.
Choosing the most suitable type
If you are the type of person that always pays off their full credit card balance each month, then the cost of the interest on the card is not important. Therefore it can be worth looking at each card and thinking about which of them, cashback or reward would give you the most benefits. Do be careful that you are not buying more than you need because of the rewards form the card though. Spending money to get a very small amount of cashback or rewards back will not be worth it so just spend normally and enjoy any rewards that you get as a bonus.
Some people choose to take out an interest free credit card and use it to spend everything on. They then put away the money to pay off the card each month into a savings account and pay back the card in full just before the interest free period runs out. They then gain interest on the savings and make a profit out of the card. Doing this is risky though as you may not save enough money or may spend your savings if you need money. You need to be sure that you have the self-discipline not to spend the money so that you can take advantage of the card and not end up paying the high interest rates.
If you tend to only pay back the minimum or less than the whole balance on a credit card then the interest rate is really important. You want to make sure that you pick the card with the cheapest interest rates so that you pay out the least possible amount of money to the card company. Try not to be tempted by any rewards, cashback or even store cards as the interest on these is likely to be higher and you will end up paying more out for them.
So the best credit card type will very much depend on how you use your credit card. In all circumstances, there will be a credit card which is cheapest for you or even that makes you money. It is good to think about your spending habits and then you will be able to find the best card for you.