I believe that the word “Credit Card” should be familiar to you by now. Some people have been hearing about credit card but they do not know what it is all about and how it works.
In case you do not know anything about credit card and what it is used for, you do not have to worry about it. The purpose of this post is to give you general information about the credit card.
There are things we do every time that require the use of credit cards but due the ignorance about it, one will start looking for alternative ways to get them done. I know that if someone educate you on the uses of credit card, you will be glad to be making use of it. See Best Gift Card for Women’s Birthday.
What is a Credit Card?
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder’s accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the other agreed charges).
The card issuer (usually a bank or credit union) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.
There are two credit card groups: consumer credit cards and business credit cards. Most cards are plastic, but some are metal cards (stainless steel, gold, palladium, titanium), and a few gemstone-encrusted metal cards.
A regular credit card is different from a charge card, which requires the balance to be repaid in full each month or at the end of each statement cycle.
In contrast, credit cards allow consumers to build a continuing balance of debt, subject to interest being charged.
A credit card differs from a charge card in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.
A credit card also differs from a debit card, which can be used as currency by the owner of the card. Alternatives to credit cards include debit cards, mobile payments, digital wallets, cryptocurrencies, pay-by-hand, bank transfers, and buy now, pay later.
As of June 2018, there were 7.753 billion credit cards in the world. In 2020, there were 1.09 billion credit cards in circulation in the U.S. and 72.5% of adults (187.3 million) in the country had at least one credit card
Types of Credit Card
The following are the 8 different kinds of credit cards available:
Rewards credit cards
Rewards credit cards typically give you points or cash back based on a percentage of your spending and some even offer bonus points in popular categories like groceries, gas and dining out.
Rewards credit cards also tend to offer at least a few different ways to redeem your points, often including options for statement credits, gift cards or merchandise.
This makes them a great option for everyday expenses when you know you can pay off your card right away.
By using a rewards credit card to cover your basic purchases, like groceries and household supplies, you can earn cash back and travel rewards for purchases you need to make anyway.
Cashback credit cards
Cashback credit cards make it easy for you to earn cash back or statement credits on your spending, although how rewards are doled out varies from card to card.
Some options in this niche offer a flat rate of rewards, while others offer bonus points in certain categories like dining or travel.
Some even offer bonus rewards in rotating categories each quarter, as well as a flat rate of rewards on all non-bonus purchases.
Many cashback credit cards come with no annual fee as well, although some with more generous bonus offers and rewards schemes charge annual fees on the modest side, usually under $100.
If you tend to spend more in particular categories, like groceries or dining, you might choose a bonus category card rather than a flat-rate card, which is ideal for those with varied spending looking for an everyday card.
Travel credit cards
Travel credit cards offer you the opportunity to earn rewards that are geared specifically toward travel, whether that means earning flexible travel credits you can use toward any travel purchase or even points you can transfer to airline or hotel programs.
Some travel credit cards also let you earn points within a specific program, such as a frequent flyer program or hotel loyalty program.
If you often travel for business or pleasure, you can also keep your eye out for luxury travel credit cards that offer perks like airport lounge access, annual travel credits and credits for Global Entry or TSA PreCheck.
You don’t even have to leave town to start earning points and miles that can make your next trip more affordable — many of the best travel rewards cards let you earn these perks by making everyday purchases.
Business credit cards
Business credit cards allow cardholders to keep their personal and business expenses separate while they earn rewards on all their business spending.
Interestingly enough, like personal rewards cards, business credit cards can also be cashback credit cards, general rewards credit cards, travel credit cards, or even secured credit cards. You do need to have a business or income-producing activity to qualify for a business credit card.
In general, a good business credit card helps you benefit from your everyday spending and makes running your business easier.
Ideally, you’ll want to find a credit card with a generous rewards program, expense tracking abilities and features that help boost your bottom line.
Some business credit cards will give you a flat reward rate for all of your purchases, whereas other cards reward common business expenses, like travel or internet services, at higher rates.
When it comes to redeeming your rewards, business credit cards generally let you exchange your rewards for either cash back or airline miles.
Student credit cards
Student credit cards are “starter credit cards” of sorts specifically geared to young people with a limited credit history.
In other words, application requirements aren’t so stringent, so it’s easier to get approved. Most student credit cards don’t charge an annual fee, and many offer rewards for each dollar you spend or even bonus perks for good grades. See Amazon Credit Card.
If used responsibly, signing up for a student credit card can help young people build their credit and start creating good financial habits.
Secured credit cards
Most credit cards are unsecured, meaning you don’t have to put down any money upfront for collateral. With secured credit cards, on the other hand, you’re required to put down a cash 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 $500 initial deposit in order to receive a $500 line of credit.
While putting down collateral may not seem ideal, secured credit cards are the easiest type of credit card to get approved for, so they are often helpful when you need to build credit from scratch or want to repair your credit after a financial hurdle.
Co-branded credit cards
Co-branded credit cards are store or brand credit cards offered through traditional card issuers like Chase, Citi or American Express.
These can include airline credit cards that let you earn miles within a specific frequent flyer program or hotel credit cards that let you earn points within a hotel loyalty program.
Some co-branded credit cards also partner with retail stores, although you can typically use them for non-store purchases as well.
Generally, the rewards offered by co-branded credit cards are limited to one brand, but their rewards are solid and, in many cases, the value of these rewards (like free hotel nights) end up being worth more than cash back.
Store credit cards
Store credit cards are 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, although some store credit cards can be used within a specific family of stores.
Generally, store-branded credit cards have higher interest rates than general-purpose cards, and they are often more likely to charge deferred interest.
Deferred interest means you’ll get a low or 0 percent introductory rate for a period of time, but if you don’t pay the full amount off within that time, you’ll be charged retroactively for the interest.
That being said, if you can pay off your store credit card on time, you may be able to take advantage of some great perks and rewards programs.
Requirements to apply for Credit Card
Here’s an idea of the kind of information your lender might ask for when you’re applying for a credit card:
It’s possible to apply for a credit card once you’re 18. But according to the Consumer Financial Protection Bureau (CFPB), “in most cases, you’re required to be at least 21 to get a credit card.”
If you’re under 21, you’ll have to prove that you can independently make payments on the account or have a co-signer who is over 21. But keep in mind that not all card issuers allow co-signers.
Proof of identification
Some credit card issuers require documentation to prove your income and that you have a U.S. address.
Some issuers require a Social Security number (SSN) as proof of identity. An individual taxpayer identification number (ITIN) may also be accepted.
Capital One asks for your full name, date of birth, SSN, physical address and estimated gross annual income.
Depending on the type of card that you choose, you’ll need to meet the minimum credit score requirement for that card to be approved.
There are cards designed for all types of credit situations, so you can choose to apply for the one that’s right for you.
How to Get a Credit Card
There are several methods that you can use to get a credit card. They are as follows:
Applying for a credit card online is often the quickest option. You could get an instant answer to your application. And if you’re approved, some lenders may give you a virtual card number you can start using straight away.
You can also apply for a credit card in person at a branch—or a café for Capital One credit cards. This can be a helpful way to have your questions answered and to receive assistance with the application process. With this method, however, you’re limited to applying during business hours.
Over the phone
Applying over the phone is another credit option. During business hours, you can usually speak to a representative who can assist you with the process.
Sending an application through the mail is typically the slowest way to apply for a card. It might take a few weeks because you’ll need to wait for the card issuer to receive your application and for its response back in the mail.
I hope that you have seen the information you are looking for in this article. In case of any other questions about credit cards, kindly make use of the comment section below.