Although we all know about credit cards – and likely have multiple cards - what might be surprising is that there are a number of different types of credit cards out there. And they all have different pros and cons, nuances and sometimes hidden details. While this is not an all-inclusive list, here are some common types of credit cards available to potential cardholders.
- The “Standard” credit card is the one most people are familiar with. When a borrower has this type of card, he or she has a line of credit up to a certain limit. Sometimes there are fees simply for having the card, sometimes there are not. With these cards, borrowers are expected to pay a minimum monthly payment, which is typically a certain percentage of the balance owed. There is an interest rate which accrues on any balance that is not paid off in full each month. Late fees and penalties apply when a payment is not made on time.
- The “Balance Transfer” credit card is one that typically offers a very low introductory interest rate for those balances transferred to the card from other types of credit cards. The benefit of transferring other credit card balances to this type of card is that borrowers can pay off balances at a zero or very low interest rate – probably much lower than the one that applies to their current credit card balances. The catch is that the balance transfer amount must be paid off within a certain time period before higher rates kick in. For example, a balance transfer credit card promotion may offer that a person may transfer up to $10,000 in credit card balances to the card and have a 0% interest rate for 12 months. This type of deal is great for card holders who plan and are able to pay off the balance within this time frame. If you know you cannot do so, transferring balances to this type of card generally is not a great idea. Monthly minimum payments are required and late payment fees and penalties apply.
- The “Rewards” credit card generally has the same type of terms as a standard credit card, except it has additional benefits. With rewards credit cards, a cardholder can earn points for certain types of purchases, and possibly all purchases. The card issuer sets specific terms governing when rewards points are earned. This type of card is advantageous if cardholders hope to earn points towards travel, hotels and/or various retailers such as Best Buy, Babies R Us, etc. When a certain number of points are earned, rewards certificates (which are treated as gift certificates) are sent to the cardholder. In some cases, cardholders use these credit cards towards everyday purchases with the goal of accruing as many points as possible, and then paying off the balance each month.
- The “Subprime” card is one that carries many unfavorable terms and high interest rates. These types of cards are sometimes the only option for those with bad credit. Be wary of these cards as the terms and conditions are often very hidden and confusing.
Each card has different quirks and it is critical that a cardholder know exactly what the terms and conditions are so as to avoid unexpected fees and penalties.
Federal law, the billing statement must provide you with every detail you need to know regarding your credit card account, including the following:
- The card’s previous balance
- The minimum payment due AND the payment due date
- A specific late fee amount that will be assessed if you pay late
- A detailed list (and summary) of payments, purchases, credits, fees, accrued interest, balance transfers and any other debits made to the account
- A specific breakdown of the types of balances on your account AND the interest rate and charges associated with EACH type of balance
- Your credit limit and available balance
- The dates of the billing period and the number of days in the billing period
- Contact information for the credit card issuer
- The total amount of fees and interest paid year-to-date
- If applicable, the rewards earned
The credit card statement will also include what is called a minimum payment disclosure statement which sets out how long it will take you to pay your current credit card balance if you paid the minimum payment each month. It will also provide you with the monthly payment required to pay off the balance in three years. It should stand out on your credit card statement.
The statement must also include a late payment warning which informs you of the consequences if you do not make your payment on time – including a late payment penalty and any penalty rate increase.