Takeaways
- The average U.S. consumer has 3.9 credit cards with a rolling monthly balance.
- Cash-back rewards give you a percentage of the purchase price back.
- Travel rewards can help with free flights, bag fees, seat upgrades, and hotel stays.
- Secured credit cards require a cash deposit that acts as your credit limit.
- The best credit card for you depends on how you want to build your credit score and take advantage of rewards programs
Choosing the best credit card can be an overwhelming process. With so many types of credit cards on the market, it can take time to decide which features to focus on and which card is best for your personal finances.
Selecting the perfect credit card might seem like an illusion for most people. According to a recent survey, U.S. consumers hold an average of 3.9 credit cards.[1] Many consumers apply for a credit card when they spot catchy signup promotions, like a tremendous amount of travel points, increased cash-back offers, or extended zero percent financing terms.
Knowing how a credit card works can be half the battle. Let’s explore the basics before we discuss what to consider with different card categories.
Take the Next Step:
On Continental Finance’s Website
Reflex® Platinum Mastercard®
Smart Money Rating: 5/5
Best For: Building Credit
Initial Credit Limit: Up to $1000
What Is a Credit Card?
A credit card is a payment card used by millions of consumers that allows you to borrow money from a line of credit from a bank or credit union to make purchases. It is a form of revolving credit.
When using a credit card, you take out a short-term loan. This loan must be repaid in full by the end of the billing cycle or paid over time while accruing interest. All credit cards come with a credit limit, the maximum amount you can borrow until you pay your credit card debt (or at least a portion).
Read More: 7 Surprising Reasons You Should Use Your Credit Card
Credit cards offer surprising benefits, such as convenient and secure online payments, fraud protection, and reward programs. Using a credit card responsibly by making on-time payments and effectively monitoring your utilization can help boost your credit score considerably.
Take the Next Step:
On Continental Finance’s Website
FIT™ Platinum Mastercard®
Smart Money Rating: 5/5
Best For: Building Credit
Initial Credit Limit: $400
7 Types of Credit Cards
Before choosing the right credit card for you, it is essential to shop around. During that process, here are seven common types of credit cards to consider:
1. Cash Back Rewards
Cash back rewards credit cards offer a percentage of the purchase price of goods and services back as cash. These cards usually provide cash-back rates between 1% and 6% and have varying terms, depending on your credit report.
Here’s how it works. Every time you use the card, you can earn cash rewards, calculated as a percentage of the total purchases or with a “points-per-dollar” model.
Read Also: Are Credit Card Cash Advances a Great Idea?
These points or rewards can be redeemed as statement credits, gift cards, or direct deposits into a high-yield checking or savings account. Cash-back credit cards are perfect for everyday spending because they effectively apply discounts on everyday purchases. Some cards even offer higher cash-back rates for specific spending categories, such as groceries, gas, restaurants, and travel.
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On Upgrade’s Website
Upgrade Credit Card
Smart Money Rating: 5/5
Cash Back: 1.5%
Best For: Establishing Credit History
Credit Line: $500 – $25,000 (Terms Apply)
2. Travel Rewards
Travel rewards credit cards allow you to earn points or miles for each dollar spent. You can redeem these points or miles for travel-related expenses, such as flights, hotel/motel stays, and car rentals.
Plug and Play: Smart Money’s Credit Utilization Calculator
These cards also offer additional perks, such as enhanced travel insurance, access to airport lounges, and no foreign transaction fees. Travel rewards cards are perfect for frequent travelers because they offer substantial savings and benefits, like bonus points for travel-related transactions.
3. Store Credit Cards
If you love to shop, getting a store credit card might be right up your alley. Retailers issue store credit cards, which can usually only be used for purchases at that specific retailer or their affiliates. For example, websites like Amazon, Target, Gap, and Lowes all offer store credit cards. These cards provide exclusive benefits, like membership discounts, unique financing options, and other perks.
Get More: What is a Personal Line of Credit? Here’s How You Get One
Store credit cards typically come with higher interest rates than general-purpose credit cards, so pay off your balance each month to avoid accumulating interest charges. These credit cards are perfect for loyal retail customers who predominantly shop at a handful of stores frequently. The exclusive benefits and perks might help you maximize savings and rewards.
4. Low-Interest Cards
Low-interest credit cards offer low annual percentage rates (APR) on purchases and balance transfers. This makes them a perfect option if you are currently carrying a credit balance on a high APY card and need to transfer the balance to give yourself the flexibility to pay off your credit card debt without incurring interest charges.
Compounding interest on high-interest credit cards can be hard to escape. Low-interest credit cards can help you minimize any interest charges you incur and allow you to pay off debt in a more affordable way. (Read more about the Debt Snowball vs.Avalanche Method.)
Some low-interest cards even offer 0% APR introductory periods, which gives you a complete break from interest charges for up to 18 months (on some cards). Signing up for a low-interest card can be smart if you need to make a large-ticket purchase or use a debt consolidation strategy to reduce the overall cost of borrowing money.
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On PayPal’s Website
The PayPal App
Smart Money Rating: 4.75/5
Cash Back: 1-5% (Terms Apply)
App: Send, Receive, Gift Cash
Best For: Sending Money Fast
5. Balance Transfer Cards
While low-interest rate cards can be helpful when shedding high-interest debt, balance transfer credit cards were created to specifically assist you in consolidating debt. These cards offer the option to pay off high-interest debt by moving existing balances from one card to another.
Balance transfer credit cards typically feature an introductory APR of 0% for 12-18 months. This multi-month grace period lets you pay down debt without losing ground while constantly battling a tsunami of interest charges. For these cards, focus on any balance transfer fees, often a percentage of the amount transferred to the card.
6. Secured Credit Cards
Secured credit cards are backed by a cash deposit as collateral. Your cash collateral deposit determines your credit limit, and in the event of default, it will be used to pay off the account. For example, if you put down $500 as collateral, you can freely spend up to $500 with your secured card.
Secured cards report your credit information to the credit bureaus each month, which helps build a positive credit history with responsible use. (Read more about the 5 Steps to Apply for a Secured Credit Card.)
Take the Next Step:
On Pesto’s Website
Pesto Secured Mastercard
Smart Money Rating: 4.75/5
APR: 29.99% % (Rates Vary)
Best For: Rebuilding Credit
Required Credit Score: No Credit Score Check
7. Student Credit Cards
Student credit cards are specifically designed for new college students who do not have a FICO or VantageScore and need to establish a favorable credit profile. These cards generally offer lower credit limits and rewards on purchases relevant to student life.
Many students sign up for student credit cards when they need educational resources like books, computers, and supplies to kickstart their studies. Student credit cards also offer discounts on credit education resources and can be the perfect way to establish smart money habits.
Smart Summary
Credit cards and other cashless forms of payment are all but required in today’s economy. Getting the best credit card for your financial situation is critical to helping you increase your credit score, manage your budget, automate your finances, and accrue some serious reward perks. Check out our guide on how to select the best credit card.
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(1) Experian. What is the Average Number of Credit Cards? Last Accessed January 14, 2025.
