Four Types of Credit Cards
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As a student just now starting to experience some independence, you will soon need to acquire a credit card or two to make purchasing things easier. The big question is what kind of card should you get? Here is a short primer on the four different types of “credit cards”.
1) Standard Credit Cards.
Technically, these are the only ones that are truly “credit cards” by the strictest definition. These are the ones where you have to fill out an application and which you may or may not get, depending on your credit score. Standard credit cards offer you essentially small loans every time you use them. . In return, you’ll not only pay the money back to them, but interest as well. The biggest advantages to this type of card over the other four are that they will help build your credit score, and also, more money is usually available to you.
2) Debit Cards
You’ll usually get one of these when you open a checking account. It will have a logo from one of the major card companies, and for the most part, it will work just like a regular card. The difference is that you can only spend as much money as is in your account, and this money is taken out immediately. This is a good option for someone who cannot control his spending. Also, if your credit score is lacking it’s still usually easy to get one of these. The downside: It does nothing for your credit score on your credit reports.
3) Secured Cards
These are credit cards that you “secure” by making a payment, usually a couple hundred dollars. Your credit limit is then the same as the amount of money that you placed on the account. The advantage to this is that even a person with a poor credit score can get one, and if you make your payments on time, it will actually improve your credit. The down side, of course, is that you need money up front to get the card.
4) Prepaid Cards
These are basically the same as secured cards in that you can only spend as much money as you place in the account. But unlike secured cards, these credit cards do nothing to help or hurt your credit, as they do not report to the credit bureaus. The one advantage is convenience: They can be bought and refilled at hundreds of grocery and drug stores across the country.
Our advice: Get a standard card when possible, but use the debit card for most daily purchases, saving the standard card for emergencies. Use secured or prepaid credit cards only if you cannot quality for a standard card.
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