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One Size Doesn’t Fit All: Different Cards for Different People

[Thursday, May 26th, 2016]

Not all credit cards are created equal. The card that works for one person, might not work for another. The trick is to find the one that works best for your needs. And to do that, you need to know what your options are. If you don’t know all the different types of cards that are available out there, here’s a primer on what you can find if you look:

Unsecured credit cards. These are the default, basic type of credit card. You’ll have a credit limit ranging from about $300 to as much as $30,000, an annual percentage rate for interest that accrues on an unpaid balance, and a grace period in which to pay off your purchases before you’re charged interest. These cards come in a wide variety, including travel rewards credit cards, low interest credit cards, cash back cards, and no-fee cards. To get one, you generally need decent credit, an annual income, a social security number, and that’s about it. Even if you have bad credit, or no credit, you may be able to get an unsecured card. Student cards are often a good fit for people who don’t have any credit history yet. An unsecured credit card doesn’t cost anything up front. You make your purchases, and later you pay your bill. You don’t have to pay off the whole thing, but you must pay a minimum payment each month.

Secured credit cards. These cards are for people who can’t get an unsecured credit card, either because of a bad credit score, or because they don’t have a credit history at all. With a secured card, you put down an amount in collateral. That becomes your credit limit, and you can then use the card to make purchases. You will still need to pay the card off each month—or pay the minimum payment. Unlike a prepaid card, which I’ll explain next, the amount of collateral stays with the issuing bank, as a guarantee that they will get their money back, in case you default on the loan. Secured credit cards often have fees associated with them, in addition to the collateral amount. They are a good solution for folks who cannot get another type of credit card.

Prepaid cards. These aren’t really credit cards at all, although they look like them. With a prepaid card, you load funds onto the card up front. As you use the card, the balance decreases. In this way, it’s like a debit card. You don’t have to pay it off, because the purchases are already paid for with the money you loaded onto the card. You can have paychecks direct deposited onto these cards, use them to pay bills online, and transfer funds to other people. Some people use them as an alternative to a checking account.

There are a couple other types of cards, too. Debit cards are tied to your bank account and work like checks; most people are familiar with these. And charge cards are like credit cards that you pay off each month in full. But unsecured, secured, and prepaid are three common types of cards that you now understand. So go and find the right one for you today.

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