Choosing the Right Credit Card: Understanding the 3 Main Types
With so many credit cards available today, it’s easy to feel overwhelmed when trying to choose the right one. Thankfully, most credit cards fall into one of three primary categories: rewards cards, low-interest or balance transfer cards, and credit-building cards. Understanding these categories can help you narrow your options and find a card that fits your financial needs.
Keep in mind that these categories often overlap — a card might earn rewards while also helping to build credit or save on interest. Your ideal card will depend on your spending patterns, financial goals, and credit history.
Here’s a closer look at the three major types of credit cards:
1. Rewards Credit Cards
Rewards cards let you earn something back every time you use them, whether that’s cash, points, or miles. These come in two broad types: cash-back cards and travel rewards cards.
Cash-Back Cards
Cash-back cards return a portion of your spending as cash or statement credit. They typically come in three styles:
- Flat-rate cards offer the same cash-back rate on all purchases, making them simple and predictable. Many provide 1.5% back, but some go further. The Wells Fargo Active Cash® Card, for example, offers unlimited 2% cash back with no annual fee.
- Tiered-rewards cards offer higher cash back in specific categories. If you spend heavily in certain areas, these cards may offer better returns. The Blue Cash Preferred® Card from American Express earns 6% back at U.S. supermarkets (on up to $6,000 annually, then 1%), 6% on U.S. streaming subscriptions, 3% on transit and gas, and 1% elsewhere. Terms apply.
- Rotating bonus category cards, such as the Chase Freedom Flex®, offer quarterly changing categories where you can earn elevated cash back — typically 5% — but you must activate them each quarter. These cards require a bit more attention to maximize rewards.
Travel Rewards Cards
If you’re a frequent traveler or plan to be, a travel rewards card might be a better fit. These cards either offer general travel rewards or are co-branded with a specific airline or hotel.
- General travel cards offer flexible redemption options. For example, the Capital One Venture Rewards Credit Card earns 2 miles per dollar on every purchase, and the miles can be used for a range of travel expenses.
- Co-branded travel cards are ideal if you’re loyal to a specific airline or hotel chain. For instance, the Delta SkyMiles® Gold American Express Card earns 2X miles on Delta purchases, U.S. supermarket purchases, and restaurants worldwide. It also offers a welcome bonus of 50,000 miles after spending $2,000 in the first six months (terms apply). The annual fee is waived the first year, then $150.