What credit cards are and why the type matters
A credit card is a borrowing tool: you use it to buy things now and pay the card company back later, usually with interest. The type of card you get depends on what you want from it — rewards, low interest, building credit from scratch, or straightforward access to credit when you need it. Different cards charge different fees, offer different rewards, and have different rules about who can get them. Knowing the main types helps you pick one that matches your actual situation instead of chasing a card designed for someone else.
Your credit history, income, and current debt all affect which cards you can get and what terms they will offer you. A card that looks great on paper might cost you money if it has an annual fee you do not use, or a rewards rate that does not match how you spend. This guide walks through the main types so you can see which one fits your needs.
Key Takeaways
- Rewards cards offer cash back or points on purchases but usually require good credit and may charge an annual fee.
- Low-interest cards are designed to move existing debt from another card and charge less interest during an introductory period.
- Secured cards require a cash deposit as collateral and are built for people rebuilding credit or starting from zero.
- Student cards and basic cards have fewer rewards but lower barriers to entry for people with limited or no credit history.
- Store cards and business cards serve specific purposes — shopping at one retailer or running a business — and usually have stricter terms.
Rewards cards: cash back and points
Rewards cards give you a percentage of your spending back as cash, points, or airline miles. A card might offer 2% cash back on all purchases, or 5% on groceries and gas with 1% on everything else. The rewards add up over time, but only if you actually use the card and pay the full balance each month — if you carry a balance and pay interest, the interest usually costs more than the rewards are worth.
Most rewards cards require good credit (usually a score of 670 or higher, though this varies by card) and many charge an annual fee of $95 to $450. The fee makes sense only if your rewards will exceed it. A card with a $95 annual fee and 2% cash back needs you to spend $4,750 a year just to break even. If you spend less than that, a no-fee card with lower rewards might save you money overall.
Rewards cards also come with perks beyond cash back: purchase protection, extended warranties, travel insurance, or concierge services. These extras matter more to frequent travelers or people who buy expensive items regularly. For everyday spending, the cash back itself is usually the main draw.
Low-interest and balance transfer cards
A balance transfer card lets you move debt from one card to another at a much lower interest rate for a set period — often 6 to 21 months with 0% interest. This is useful if you are carrying a balance on a high-interest card and want breathing room to pay it down without interest piling up. The catch is that after the introductory period ends, the interest rate jumps to the regular rate, which can be 15% to 25%.
Balance transfer cards usually charge a fee of 3% to 5% of the amount you transfer, taken upfront. If you transfer $5,000 at 3%, you pay $150 when ready. That fee is still usually cheaper than paying interest for months, but you need to do the math: if you can pay off the balance before the 0% period ends, the card saves you money. If you cannot, you might end up worse off than staying with your current card.
These cards also require decent credit to get approved. If your score is below 650, you will likely be turned down. They are designed for people who already have credit history and are trying to manage existing debt, not for people building credit from scratch.
Secured cards for building or rebuilding credit
A secured card requires you to put down a cash deposit, usually between $200 and $2,500, which becomes your credit limit. If you put down $500, you get a $500 credit limit. You use the card like any other card, but the deposit sits in a bank account as collateral — the card company can take it if you do not pay your bill.
Secured cards exist for people with no credit history (like someone who has never borrowed before) or poor credit history (like someone recovering from missed payments or collections). The deposit removes the risk for the card company, so they approve people they would otherwise turn down. As you use the card responsibly and pay on time, your credit score improves. After 6 to 18 months of good payment history, many issuers will convert your secured card to a regular unsecured card and return your deposit.
Secured cards do charge interest and sometimes annual fees, so read the terms carefully. A card with a $95 annual fee on a $500 limit is expensive relative to what you are borrowing. Look for cards with no annual fee or a low fee, and an interest rate under 20% if possible. The goal is to build credit without paying so much in fees that the card becomes a burden.
Student cards and basic cards
Student cards are designed for people in college or graduate school with limited credit history. They usually have no annual fee, lower credit requirements than rewards cards, and modest rewards like 1% cash back or points on purchases. Some offer bonus points if you maintain a good GPA or enroll in automatic payments. The rewards are smaller than premium cards offer, but the barrier to entry is much lower.
Basic cards (sometimes called classic or standard cards) are for anyone with fair credit who wants a straightforward card with no frills. No annual fee, no rewards, no special perks — just a credit limit and an interest rate. These cards are useful if you want to build credit without paying fees, or if you prefer not to chase rewards. Interest rates on basic cards are usually higher than on rewards cards because the issuer is not making money from rewards, so they make it from interest instead.
Both student and basic cards are stepping stones. Once your credit improves, you can move to a rewards card or a card with better terms. The point of starting with one of these is to prove you can borrow responsibly without paying a lot of fees along the way.
Store cards and co-branded cards
A store card is issued by a retailer — Target, Macy's, Amazon, Best Buy — and can usually only be used at that store or its partner locations. Store cards often offer discounts on your first purchase (10% to 20% off) and bonus points or cash back on purchases at that store. Some offer special financing: 12 months with no interest if you spend over a certain amount, for example.
The downside is that store cards usually have higher interest rates than regular credit cards (often 20% to 30%) and lower credit limits. They also count toward your total available credit, so opening many of them can hurt your credit score. Store cards make sense if you shop at that retailer regularly and will use the discount and rewards. If you open a store card just for a one-time discount and never use it again, you have paid the cost of a hard credit inquiry for a small benefit.
Co-branded cards are issued by a bank in partnership with a retailer or airline — like a Chase Amazon card or a United Airlines card. These work like regular credit cards but offer extra rewards at the partner company. They have the same pros and cons as rewards cards: good rewards if you spend a lot at that partner, but annual fees and high interest rates if you carry a balance.
Business cards and specialty cards
Business cards are issued to business owners and are meant to be used for business expenses, not personal purchases. They work like regular credit cards but often have higher credit limits and rewards tailored to business spending — 3% cash back on internet and phone bills, for example. Some business cards report to your personal credit report and some do not, which affects how they impact your credit score.
Business cards usually require a business tax ID or Social Security number and proof that you actually run a business. They are not for side gigs or informal work — most issuers want to see a registered business. If you are self-employed or run a small business, a business card can help you separate business and personal spending and earn rewards on business expenses.
Specialty cards exist for specific purposes: travel cards with airline lounge access, cards for people with poor credit, cards for people over 62, cards for medical expenses. These cards are narrowly designed and usually make sense only if you fit the specific category. A travel card with $450 annual fee and lounge access is a waste of money if you fly twice a year, but valuable if you fly monthly.
How to choose the right type for your situation
Start by knowing your credit score. If it is below 620, a secured card or basic card is your realistic option — rewards cards will turn you down. If it is between 620 and 670, you might get approved for a student or basic card. If it is above 670, you have access to most cards, including rewards cards and balance transfer cards.
Next, think about what you actually do with credit. If you pay your balance in full every month, a rewards card with no annual fee makes sense — you get rewards without paying interest. If you carry a balance, a low-interest card or balance transfer card is more useful than a rewards card, because the interest you save matters more than the rewards you earn. If you are building credit from zero, a secured card or basic card is the right starting point, even if the rewards are small.
Finally, do the math on fees. An annual fee only makes sense if your rewards or benefits will exceed it. A $95 annual fee on a card you use once a month is a bad deal. A $450 annual fee on a travel card you use for business trips that earn you $600 in lounge access and travel credits is a good deal. Be honest about how much you will actually use the card and what the card will actually cost you.
Frequently Asked Questions
What is the difference between a credit card and a debit card?
A debit card pulls money directly from your bank account, so you can only spend what you have. A credit card is a loan — you spend money now and pay the card company back later, usually with interest. Credit cards build your credit score when you use them responsibly; debit cards do not. Credit cards offer fraud protection and rewards; debit cards usually do not.
Can I get a rewards card if my credit score is low?
Most rewards cards require a score of 670 or higher. If your score is lower, start with a secured card or basic card to build your credit. After 6 to 18 months of on-time payments, your score will improve and you can move to a rewards card with better terms.
What happens if I do not pay my credit card bill?
Late payments damage your credit score, trigger late fees and penalty interest rates, and can lead to collections. If you miss payments for 180 days, the card company may close your account and send your debt to a collection agency. This stays on your credit report for seven years and makes it hard to borrow money in the future.
Should I close a credit card after I pay it off?
Closing a card can hurt your credit score because it lowers your total available credit and removes payment history from your report. If the card has no annual fee, keep it open and use it occasionally. If it has an annual fee you do not want to pay, you can close it, but your score will dip temporarily.
How many credit cards should I have?
There is no magic number. Having multiple cards can help your credit score because it lowers your credit utilization (the percentage of available credit you are using). But each new card process triggers a hard inquiry that temporarily lowers your score. Open cards only if you have a real reason to use them, not just to collect them.