Credit cards come in a variety types with varying credit card rates, credit card limits, credit card fees and credit card reward programs. It is important to know the different card types before choosing the best credit card that meets your financial needs. Prior to filling out the credit card application and deciding which credit card is right for you it may important to know the basic categories of credit cards. These are the main category of credit card types without further differentiation into the various elements that may come with an individual card such as reward attributes, interest rates, fees, and other particular services and features promoted by the credit card companies.
There are four basic types of credit cards each with their own individual features, rates and cost. The most common type of credit card is the bank credit card that has a revolving balance and predetermined credit card limit. Visa credit card and MasterCard credit cards are the most common and widely known of the standard bank credit cards.
With a bank credit card, each time the credit card is used for a transaction the credit card issuing bank pays the merchant for the product or service in the transaction, less a predetermined service charge. These credit cards are widely accepted and give the store merchants the ability to sell their goods and services on credit as well as giving consumers access to credit to purchase a wide assortment of goods and services. The credit card company that issues the credit card makes their profits from the credit card interest rates and fees. The credit card type, Visa credit card or MasterCard credit card, make their money from the transaction fee or service charge deducted from the funds sent to the merchant.
The credit card holder making a transaction with a bank credit card is using credit up when they make a purchase which places a balance or increases an existing balance on the credit card and reduces the available credit on the card. The available credit is increased or made available again once a payment has been recorded by the credit card company. A finance charge accrues on the outstanding balances during each billing cycle based on purchases, the existing credit card balance, the credit card rate and credit card payments. Credit cards will have a minimum payment that must be paid by a certain due date to avoid late payment penalties. The terms and credit card rates will vary between credit card companies.
Each issuing bank sets its own credit card policies regarding credit card rates and credit card fees, credit card limits, the qualifying conditions to get the credit card and other features. Visa and MasterCard do not themselves issue the bank credit cards. Visa and MasterCard serve as a clearinghouse for the participating banks that issue the cards and use the Visa or MasterCard name and logo. The credit card transactions are all handled and administered by the issuing credit card company or bank.
Bank credit cards do generally have advantages over the other credit card types with more features and attributes such as credit card rewards programs, credit cash advances, credit card cash rebates, credit card balance transfers and more.
The next credit card category contains charge cards or travel and entertainment cards. Charge cards or travel and entertainment cards include cards such as like American Express, Carte Blanche, and Diners Club. Charge cards were originally established for the card holder to make transactions monthly and then pay the balance on a charge card in full at the end of each month. These cards are also widely accepted and a large variety of consumer goods or services can be bought using these cards. Since the balance accrued on these cards is paid in full each month, they generally do not have an interest rate that determines the finance charge or minimum payment. Late payments on the card are subject to fees.
Store cards or department store cards are the third category of credit cards. The credit cards are also often referred to as limited purpose credit cards, merchant credit cards or sometimes affinity credit cards. The use of these credit cards is generally limited to transactions involving a specific merchant; examples of these credit cards include such a Sears’s credit card, Macy’s credit card or even a gas or oil company credit card. Department store credit cards are offered by most of the major retailers and a number of smaller merchants as well.
Department store credit cards or merchant credit cards are used and function much like bank credit cards with exception of where they made be used for transactions. These limited purpose credit cards will have a preset credit limit with a minimum monthly payment and a credit card interest charged on current credit card balances. The credit cards usually will not charge an annual fee, have relatively low credit limits and generally have higher credit card rates than bank credit cards.
Secured credit cards are the final main category of credit cards. These credit cards can also be classified as a sub category of bank credit cards however they differ in one significant manner. These credit cards are almost identical to bank credit cards however; the credit limit is established by a secured savings account. Secured credit cards are usually established with either the Visa credit card or the MasterCard services and logo. Charge cards and store cards do not offer secured credit cards.
With a secured credit card, the credit card account holder uses the card the same way as a standard Visa credit card or MasterCard. The secured credit card holder receives a monthly statement for purchases and transactions and charged a finance charge for the balance. Credit rates and fees will vary between credit card companies. If the monthly payment is not made the amount due may be deducted from the deposit held on account to obtain the credit card.
Secured credit cards have a credit limit and are established based on the amount of money the credit card holder has deposited into the savings or deposit account of the credit card company issuing the secured credit card. The credit card limit may be the amount of the funds held on deposit or an amount above that.
Secured credit cards are commonly used by consumers with a bad credit history. Secured credit cards are also options for those consumers who need to stay on a budget.
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