The first credit card was simple. Banks provided a card with a line of credit. You charged it, then paid it off. That was it.
Today, things have gotten a bit more complicated.
There’s travel cards, student cards, charge cards, business cards, and on and on.
Which type of card is right for you? What are the pros and cons between them all?
We’ve broken it all down below.
Cash Back Credit Cards
A cash back credit card gives you back a percentage of everything you spend.
Cardholders typically receive between 0.5% and 2% of net spending as an annual rebate. Most folks use it to pay down future spending on their card. Some cards also let you get the rebate as cash.
It’s like getting a permanent discount on everything you purchase with that card. Since most cash back cards don’t have annual fees, it’s free money.
PRO: Cash back cards are super simple. You don’t have to do anything to get your cash back. The rebate shows up automatically. For a rewards card, it’s as simple as it gets.
CON: Don’t ever use the cash back as an incentive to purchase more than you usually would. If you carry any interest on the card, you’ll lose more money than you’ll ever get in cash back. Also watch the foreign transaction fees, many cash back cards have them.
Travel Rewards Credit Cards
This is the other main type of rewards credit card.
Travel rewards cards follow the same concept as the cashback cards, except users accrue points or miles instead of money. These points can be redeemed for flights, hotel rooms, Amazon purchases, or even cash in some cases.
Some of them also come with great perks like airport lounge access, free nights, companion fares, travel credits, and Uber credits.
PRO: If you enjoy traveling and want to maximize the value of your rewards, get a travel card. You’ll get a better return than a standard cash back card.
CON: Most travel credit cards include an annual fee to gain access to all the perks. These fees range anywhere from $100 for mid-tier cards to $600 for the top-tier travel rewards cards. You’ll also have to put more effort into spending your miles/points. Finding the right flights and hotels can take some work if you’re trying to maximize their value.
Balance Transfer Credit Cards
This type of credit card allows the user to transfer a balance from one credit card to another.
The new credit card company usually offers a promotional or introductory period – usually, six months to 18 months – with zero percent interest is charged on the transferred amount. They’re hoping that you forget about the balance, increase spending, then start paying them interest once this period is over.
PRO: If you carry a balance, these cards can give you some relief for a short period. When cash is really tight, they’re an option.
CON: Credit cards are a pretty terrible deal if you carry a balance. The interest rates are crazy high. Balance transfer might help in the short term but they’re not a real solution. Your real goal should be to get yourself to the point where you can pay all your credit cards off in full every month. That’s when credit cards start working for you.
Premium Credit Cards
Premium credit cards, often referred to as black cards, charge an annual fee but offer cardholders lots of exclusive benefits.
Often viewed as a symbol of status, premium cards offer a high credit limit and several perks that are difficult, or expensive, to find elsewhere.
PRO: A popular benefit of premium credit cards is 24-hour concierge assistance with tasks like booking travel reservations, hotels, flights, as well as activities like show tickets, restaurant reservations, home emergency coverage, car breakdown issues, and more.
CON: Premium credit cards are aimed at consumers with excellent credit and people who fall in a specific earnings bracket. For these reasons, many users don’t qualify for these types of credit cards.
For those users with incredible credit and earning a healthy wage, premium cards come with fantastic perks but substantial annual fees typically starting at $500.
Business Credit Cards
Business credit cards are intended for business owners, no matter the size of the organization. They’re an option if you generate any side income.
They usually have a few perks designed for businesses.
PRO: Cash back categories and perks for businesses. You also don’t need an actual business, you can get one in your name if you generate any income yourself.
CON: Getting a business credit card can be a bit more complicated than a personal card. You might also have to agree to a personal guarantee. That means if the business can’t make payments, your personal funds would have to be used to pay off the card. Depending on the size of the credit limit and your business, this could be an enormous commitment.
Student Credit Cards
Student credit cards are marketed primarily to people in school who have not yet had a credit card in their own name.
Student credit cards are a great way to solve the “can’t get credit cards without having a credit history” problem that everyone starts out with.
PRO: The requirements are less stringent, you’re much more likely to get approved.
CON: They typically don’t have any rewards or perks. It’s a no-frills card.
The “Plain Vanilla” Credit Card
The standard or “plain vanilla” credit card is exactly what it sounds like. There’s no cashback, no fees, no rewards for usage, and no real benefits besides an extended line of credit.
PRO: These standard credit cards typically get a lower APR than other cards. They’re also typically easier to obtain and come in handy as an “in case of emergency” payment option. If you can’t get approved for a rewards card yet, it’s good to start here and build up your credit history.
CON: There are no perks for spending. In other words, the cards work like a debit card as long as you pay them off in full every month.
Gasoline Credit Cards
These cards offer bonuses and perks for people who frequent a gas station. Many of them are connected to a single gas station brand like Shell.
PRO: A good way to maximize rewards if you spend a lot of money on gas.
CON: Most gasoline cards target specific brands of gas stations, limiting their rewards on longer drives. It’s better to find a cash back card that gives a larger cash back percentage for the entire gasoline spending category.
Retailer Credit Cards
Cards provided by particular companies like Macy’s, Walmart, Target, and more. They typically give store-based perks that you won’t be able to find anywhere else. For example, the Nordstrom card helps get you early access to the annual Nordstrom Anniversary Sale.
PRO: Exclusive perks and rewards for one of your favorite stores.
CON: Unless you spend an exorbitant amount of money at a single retailer, you’ll almost always be better off getting a standard rewards card to use across all retailers. Some of them are also “closed loop” which means you can’t use that card outside the retailer. The fees can also be much higher than typical credit cards.
Airline Credit Cards
Airline credit cards can be great if you are a frequent flyer. Nearly every airline out there offers multiple credit cards. The higher the annual fee, the more perks you get while flying with that airline. Perks include priority boarding, free checked bags, discounts on in-flight purchases, companion fares, and lounge access.
PRO: Perks and extra miles when flying with that airline. If you fly regularly, I consider these perks to be essential.
CON: Some of the best perks like extra miles and lounge access require you to purchase the ticket on that card. They all have annual fees too. So if you fly many different airlines like I do, trying to get credit cards for all them will add up.
Hotel Credit Cards
The major hotel chains (Hilton, Marriott, and Hyatt, and IHG) offer multiple credit cards. The standard perks can be great like getting a 5th night free when booking.
But the real perks come from the loyalty status they help you achieve. Having a card can get you 10-15 nights credited to your status every year. Once you unlock the higher status tiers, you can get amazing benefits like room upgrades, free gifts, and late checkout.
PRO: Makes getting status with the major hotel chains a lot easier, unlocking some incredible perks. You’ll also rack up a ton of hotel points when spending at the hotel.
CON: To get the most of these cards, you really need to pick a single hotel chain and stick with it. If you prefer to try new hotels like I do, the value is much more limited.
Check out this list of the best credit cards to find the right card for you.
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