Credit cards as they are known today were pioneered in the late 1950s by a little-known company called American Express. This small indie startup released a prototypical cardboard “entertainment and travel” card to the public in 1958. A plastic successor soon followed the next year. Thus the ability for the average American to purchase something they simply could not afford became the new normal.
In our modern day and age, much of life now revolves around the special plastic rectangle that everyone has. Credit cards are ubiquitous, and they offer both benefits and pitfalls. It can be confusing, even overwhelming, to choose one from all the available options. Here are four types of credit cards to consider so you, too, can have pockets deeper than their seams.
The Starter Card
Unfortunately, the on-ramp to getting your very own rectangle of possibility isn’t as flat as it was in 1959. Plenty of fraud within the first few months of the American Express card’s release saw to that.
These days, you’ll need a solid credit score to qualify for a card. Your credit score is a three-digit number that essentially represents the likelihood you’ll pay your bills on time. This score gives card issuers confidence in extending credit in the first place and filters out otherwise untrustworthy individuals. But how do you get a score for borrowing on credit if no one will let you borrow on credit?
If you haven’t started building credit yet or want an easy way to build more, fear not. These days you can get a credit builder card to start you on your journey. These are secured credit cards that function somewhat like debit cards. Basically, you can only spend as much cash as you load onto the card. But because they report your payment history to credit bureaus, they help you build credit.
The Rewards Card
So you’ve been building credit for a while now. You’ve paid off every latte you’ve bought before, during, and after work. You’ve stayed away from hot summer deals on antique rocking chairs. You even said no to the modern-day snake oil salesmen (looking at you, multi-level marketers of essential oils). Now you want a credit card that works for you.
It sounds like a rewards card is right up your alley. These cards offer cash back on your purchases, usually ranging from 1% to 3%. And while 1% of your purchases might not seem like much at first, in reality, it’s nothing to sneeze at. This is because that cash you’re getting back is free. So when you’re dropping your hard-earned income on inflated groceries, this card will help ease the sting just a bit.
If you’re worried about carrying a balance, look for rewards cards with a 0% introductory annual percentage rate (APR). Many cards offer this 0% APR so you can keep a balance without accruing interest for the intro period. Some of these introductory periods can last upward of 12 months! This will give you some much-needed flexibility while getting your feet wet in the credit world. But more on this later.
The Travel Card
The COVID-19 pandemic may have quashed the human desire to travel for some time. But now, with vaccines and new therapeutics, eager travelers are once again hitting the road and taking to the skies. As a result, the costs for lodging, car rentals, and airfares are soaring. If you’re still hankering for a getaway, a travel card can help put your mind and bankbook at ease.
Now, some of these travel cards may carry an annual fee. But if you’re willing to bite that initial bullet, you’ll be pleasantly surprised by the benefits they provide. Travel cards allow you to accrue points on all purchases that can be redeemed later. These points can rival the cash-back benefits of rewards cards if you’re committed to spending them on travel.
For example, some travel cards enable you to redeem accumulated points at multiple times their normal rate. This comes with the caveat that you use those points to book flights, hotels, car rentals, etc. Check and compare deals as they arise to get real data. If you do your due diligence, you’ll be able to maximize these cards’ reward structures to their fullest. You’ll know you’ve made the right choice when you’re taking your next vacation purely on points.
The Balance Transfer Card
There are times in life when you may have to make a purchase that’s more than you can initially afford. If your HVAC unit goes out during a July heat wave, you can’t wait to save up thousands for a new one. The heat’s unlikely to relent until September at least, so you put that new air conditioning unit on your credit card. Unfortunately, the relief you feel in your newly cool home may not last once you receive your credit card bill.
If you’ve amassed a significant balance on your credit card, you could squander hundreds of dollars annually on interest charges. To reduce the amount of interest you’ll pay and assist your debt payoff efforts, look into a balance transfer card. The big selling point of such cards comes in the form of 0% intro APR for an extensive period of time. When you’re not adding interest charges to your balance, you can pay it down more easily.
If you’re interested in a balance transfer card, look for a card with a 0% intro APR for 15-18 months. The longer you can go without accumulating interest on your debt, the better. Some of these cards may also have rewards bonuses, but they won’t be the primary focus. Instead, the bonus balance transfer cards offer is the ability to more swiftly dig yourself out of your financial hole.
Plastic Is Powerful
As the late, great Ben Parker once said, “With great power comes great responsibility.” A credit card is no exception — it can be a mighty financial tool, but only if you use it prudently.
If you’re still feeling uncertain, there are many online resources that will help you compare various cards’ pros and cons. When you choose the best card for you, that little piece of plastic in your pocket can open many doors.