Types of Credit Cards

There are now thousands of credit card offers provided by credit card providers from across the world. Whether you are a student looking for a zero interest card or an avid traveller looking for a credit card with a frequent flyer reward program, there is a card for everyone.

But the first step towards choosing a credit card is to find the type of credit card that perfectly fits your requirements.

Let's take a look at the different types of credit cards out there to find the best card offers:

A credit card is a form of a payment card with a revolving credit line that you can use to make transactions against a preset credit limit. Instead of charging the payments directly from your bank account, credit cards extend a line of credit and allow you to borrow money against the available credit card limit. You are expected to pay back the borrowed amount before the due date or interest and a late fee is accrued over it.

There are different types of credit cards in Australia, varying based on their functions and features. Understanding them better can make choosing a credit card a whole lot easier.

Low-interest credit cards

Low-interest credit cards also referred to as low APR cards, are a credit card type that offers a lower interest rate than most cards.

These cards are advantageous because they allow you to save money on interest rates. In contrast, they often have lesser rewards and other perks. You may even end up with a high annual fee among other charges.

Zero APR credit cards

Zero APR cards are basically zero interest cards and they do not charge any interest on the unpaid balance.

It's important to note that a zero APR credit card can offer a 0% interest rate for its entire lifetime or offer 0% APR only for a limited promotional period.

During the promotional period, which may last some months to a year, no interest will be charged on your unpaid balances. After the promotional period is over, your credit card will revert to its regular interest rate, which may be higher than the average market rate, and you will be charged accordingly. The same applies to low interest cards as well.

You can take advantage of the no-interest period to make big purchases. However, it is essential to remember the promotional offer deadline and adjust your spending accordingly.

Low-fee credit cards

Low-fee credit cards charge lower additional credit card fees than most cards. Such fees can include credit card annual fees. These fees can accrue and increase your credit card burden.

No annual fee credit card

No annual fee credit cards do not charge any annual fee for using the card. This may be a limited period offer or a permanent one.

These cards are a good option if you make a few purchases on your card and clear out your monthly balance on time. No annual fee cards are also good introductory credit building cards because they help you avoid fees that can accumulate your debt.

However, most of these cards offer little or no reward.

Rewards credit cards

Reward credit cards offer rewards in the form of cashbacks, points, or miles on your credit card expenses. These rewards cards come in varieties, and there are also different ways to redeem these rewards.

Cashback credit cards

Cashback credit cards return a certain percentage of your credit card purchases to your designated reward account. You can then redeem this cashback amount to buy products or gift cards. The retailers you can redeem the cashback from can depend on the rewards program.

Your cashback may be a flat fee on every purchase or it may be calculated based on the amount of purchase you make. For instance, you may be eligible for a 2% cashback on every purchase, or you may receive 5% cashback after reaching a certain purchase threshold.

Frequent flyer credit cards

Frequent flyer cards offer points on every credit card purchase, which you can redeem when purchasing airline tickets, travel insurance, and hotel stays. Most frequent flyer credit cards are linked to an airline rewards program.

While reward credit cards come with attractive rewards, most charge very high annual fees and interest rates.

Balance transfer credit cards

Balance transfer credit cards allow you to transfer your existing outstanding balance from one credit card to another. They are a great way to consolidate your debt and move balances from several high-interest or high-fee credit cards to a single low-interest card. They also help simplify monthly payments since you only have one credit card and one monthly bill to pay.

The receiving credit card issuer can charge a balance transfer fee and interest rate on your transferred debt.

The new credit card can also have a balance transfer limit. As such, you may not be able to transfer the whole balance from your old card.

Cash advance credit cards

Cash advance credit cards allow you to withdraw cash from ATMs or banks. These cards come with a PIN, just like a debit card, that you have to input to withdraw cash from an ATM. However, there is a limit to the amount of money you can withdraw with your credit card.

Cash advances also attract specific fees and higher interest rates on the withdrawn cash.

If you don’t have a good credit score, getting credit cards in Australia can become challenging. Credit cards for bad credit are specifically meant for people who might have a poor credit history.

Although credit card providers conduct credit checks even when issuing bad credit credit cards, high credit scores are not the main eligibility criteria. Before approving your application, providers may verify if you have a steady source of income or benefit to repay the debt.

Due to the high-risk, credit card banks are undertaking, they often charge higher fees and high-interest rates on credit cards for bad credit.

Credit building cards help people with low credit scores or thin credit history in building and improving their credit scores. Credit building cards typically offer a low credit limit which controls your spending and overall credit card balance. Consistently paying off your monthly balance can increase your credit score gradually.

Since these cards are designed to help boost credit scores, they typically have a flexible application process. However, they can attract a higher interest rate, if you cannot pay off your balance monthly.

There are different types of credit building cards:

Student credit cards

Student credit cards are offered to college students with little to no credit history. These types of cards have flexible application eligibility and they typically have lower fees attached to them with accompanying reward programs.

Secured credit cards

Secured credit cards require security or collateral to grant an applicant a new line of credit. Sometimes, issuers can require cash security that may be equivalent to the awarded line of credit. In the case of default, the issuer can offset the debt with the deposit.

Due to the security requirement, secured credit cards have a flexible application process. It is a great option for people with bad credit scores who might be finding it difficult to get a new credit card.

Business credit cards grant a line of credit to business owners for their business expenses. These cards also offer businesses several other perks such as cash backs, travel points, and any additional reward.

Business owners with an Australian Business Number or a registered company can apply for business credit cards. The application and card activity will reflect on the credit history of businesses.

Also, unsecured business credit cards attract high-interest rates. Some businesses that do not have a credit score may need personal guarantees by the business owner or any other individual to be granted the card.

Store credit card

Store credit cards can only be used in a particular store or a group of related stores. There are also open-loop store credit cards that can be used for purchases anywhere.

These cards are easy to obtain and offer shoppers several perks such as reward points on eligible purchases, complimentary delivery, shopping discount, and a flexible payment plan.

On the downside, store credit cards often charge higher interest rates than regular credit cards. It is best to apply for it if you are sure you can pay off your balance at the end of each month and if you really make frequent purchases at the stores affiliated with the card.

There are various credit cards you can choose from depending on your need and financial capability. Before you choose a card, ascertain your goals, pay off your debts, shop around to compare credit card features, and check your credit score to know your credit worthiness.

ClearScore gives you access to free credit reports and allows you to check credit score anytime. Take a look.