Types of Credit Cards

This blog post is part of the Financial Literacy series. This information could be helpful to new educators and young adults and has more generalized information that most AskKenna Resources. This is purely anecdotal. Please remember that I am not a financial advisor and this information is provided at your own risk.

There are a few main types of credit cards and each is great for various purposes.

Student Credit Card	A student credit card is often the first type offered to you after turning 18. These are great options for those new to credit cards. My first card was a Discover It* Card with a $500 limit and 21% APR. This card was a good choice for me, someone with little self-control, because a $500 limit can keep you in check. Also, my favorite bar in town didn’t take Discover so that was a blessing in disguise! Student cards are great because they often have more focus on educating the credit card holder. Complicated terms like APR and compounding interest are often defined in-context. Students cards also often have a large focus on credit scores and how they work. I enjoyed my first card because each month it sent me an updated score report that detailed how each action impacted my credit score. It was so encouraging to check it each month and see the score climbing tiny bits each time.
Cash Back Card	This is one of the most common card types for working adults. These cards will provide cash back for certain purchases. Be sure to read the fine print as often it is only cash back on the first few hundred or thousand dollars. These cards are often offered at a higher limit than student credit cards and may require a slightly higher credit score to be accepted. Some cash back cards can be set to automatically invest the cash back. That is a great program to get your money earning interest with very little work, but be sure to shop around. Perhaps that money can be working harder (i.e. gaining more interest) somewhere else.
Travel Card	Travel cards are another popular choice. They often have very high balance limits and require a higher credit score to be accepted. Travel cards can be great, especially if you do travel a lot. Be sure to compare miles to money often though—sometimes a cash back card might give you more money than you would have gotten from the value of the miles. These are important cards to monitor for usefulness as your life evolves because they often charge annual fees. If you’re not using the card, you probably shouldn’t be paying the annual fees. See the information on credit scores below for how closing an account may impact your score.
Balance Transfer Card	Balance transfers are when you have run up a large sum of money on another card at a high APR. Sometimes in order to attract your business, a new card or one of your already existing cards will offer balance transfer options. In this scenario, you can often transfer a large balance and be given a set number of months to repay that balance at a lower sum—usually 0-10% interest. Be sure to do your homework though; sometimes they charge a one-time fee that is a percentage of the total in which case if you only need a few weeks to pay the money back it may be cheaper to keep it on the original card.  Balance transfers can also temporarily impact your credit score.
Store Card	Store cards are a slippery slope. Usually store cards can only be used at the store they are offered by and online at that same store. If you’re new to credit cards, they can be a good way to establish credit without allowing yourself to run that credit card at every spot in town. However, if you have other cards, unless you’re shopping at the store a lot, it may not be offering you as many incentives as a traditional credit card.