The average consumer can find it quite challenging to decide what type of account to open in order to build their credit.
When looking for a card that meets your needs, you need to know about the different types of bank cards that are available.
Let’s take a closer look at 5 different types of bank cards.
A Debit Card is a card that works like a checkbook because the limit is the amount of money you currently have available in your checking account. Every time you use it to make a purchase the amount charged is deducted right from your account.
Debit Cards do NOT report to the 3 credit reporting agencies.
A Prepaid Credit Card works very similarly to a Debit Card without the need for a bank checking account. You add funds to your card and whatever amount you add is available to use for purchases.
Prepaid Credit Cards do NOT report to the 3 credit reporting agencies.
A Secured Credit Card is specifically designed for consumers with limited or less than perfect credit. An initial security deposit is required which establishes your card’s credit limit. Once you begin making purchases and using your card you will receive billing statements like a regular credit card.
Secured Credit Cards report to the 3 credit reporting agencies.
An Unsecured Credit Card is a regular credit card that does not require a deposit. The credit limit is determined by several factors including credit score and income. So the higher the credit score, the higher the credit limit.
Unsecured Credit Cards report to the 3 credit reporting agencies.
A Charge Card is a type of credit card that works similar to an unsecured credit card with one caveat. The entire balance has to be paid in full at the end of each billing cycle. Because you can’t carry a balance for more than 30 days, a charge card doesn’t have a specific APR, so there is no interest rate for a charge card issuer to disclose to consumers. A good example of this type of card is the standard American Express Charge Card.
Charge Cards report to the 3 credit reporting agencies.
What is the best type of credit card for you?
If you have limited or bad credit and are looking to rebuild your credit history, a secured credit card may be your best bet.
If you plan on paying your balance off in full at the end of every month, a charge card that earns points and rewards is a great option.
However, if you plan on maintaining an ongoing balance, a low-interest unsecured credit card is a much better option.
No matter what type of credit card you choose, remember to always read the fine print so you completely understand all of the terms, conditions, and fees associated with the card.