Types Of Credit Card

Credit cards come in a range of category types, each designed to cater for different needs. This might be earning rewards, building up a credit score, consolidating other debts, or financing a large purchase.

The right card used, in the right way, can help you achieve your financial goals, while providing the best possible value. Our guide below to the many types of credit cards available explains more about which might be right for you.

What are the different types of credit card?

There’s a wide range of different credit card types on the market – each with different advantages and benefits. Here are some of the main categories of cards and how they work:

Rewards credit cards

A rewards credit card pays the cardholder a ‘kickback’ on all eligible purchases made using the card. This is typically in the form of reward points as part of the card provider’s rewards scheme. Some rewards cards convert reward points into cash, vouchers or discounts off retail offers, for example, while others might pay rewards such as Avios or other types of air miles.

For retail-branded rewards cards, the same concept applies: Frequent shoppers at certain retailers will often see the greatest benefit by earning high reward rates or deep discounts when they use the card online with a co-branded retailer or to finance purchases in-store.

Rewards cards can offer decent perks on your shopping, but if you’re trying to limit your credit card usage, either because you’re at risk of carrying a large balance or because you want to limit your spending, a rewards card may not be right for you.

It is important to note that most rewards credit cards tend to have high APRs (interest rate) so will work best for cardholders who can pay off their balance in full each month. If this doesn’t happen, the interest charged on borrowing is likely to erode any reward benefits.

Cashback credit cards

Cashback credit cards work as the name suggests – by paying cash back to the cardholder when they spend with the card. 

Sometimes cashback rates are tiered. So, for example, they pay a higher rate on the first £5,000 of spend each year and a lower rate on spending over that threshold. Cashback rates are also sometimes paid at different rates on different types of spending. Always read the terms and conditions of the card so you know what reward to expect. 

The way the cashback is credited to your account will also vary, this might be paid monthly or annually, into a bank account or into your credit card account, for example.

Some cashback cards charge a monthly or annual fee which means relatively high APRs (which factor in fee and rate).

Make sure you weigh up whether the cashback perk will be worth any costs associated with the card. As with rewards cards, this type of credit card works best if you can repay your balance in full each month to avoid paying interest charges.

Balance transfer cards

A balance transfer credit card enables you to move an existing credit card balance (from another card provider) to the card, and get 0% interest on the balance for a period of time.

This could be up to two years or even longer with the most competitive deals. 

There will usually be a balance transfer fee to pay, which could be around 2% up to 4% of the debt balance. 

Once the fixed 0% interest period is over any remaining card balance will switch to the standard APR (interest rate), which is likely to be significantly higher. Typical standard card APRs tend to be in the region of 25% up to 35% for example.

0% purchase cards

Zero percent interest purchase credit cards offer 0% interest on any new spending you make on the card for a fixed period. This could range from six months, for example, up to around two years for the best deals. 

As with balance transfer cards (see above) once the 0% interest period ends any remaining balance will revert to the card’s standard APR which is likely to be much higher.

Combined balance transfer and purchase cards

Some credit cards offer 0% interest on transferred balances and also on any new spending on the same card for a fixed offer period, combining the benefits of both. The 0% offers will usually come with different lengths. So for example, you might get 12 months interest-free on balance transfers and six months interest-free on new purchases on the same card. 

This type of card can work well if you have an existing balance you’re looking to pay off more quickly, but you also still need to spend on a card.

Money transfer credit card

A money transfer credit card enables you to convert your available credit from a new credit card into cash, which is paid directly into your current account. Typically this might be used to pay off a more expensive overdraft or other borrowing.

The most competitive money transfer cards offer 0% interest for a fixed period, such as 12 months, after which time the interest rate will rise to the credit card’s standard APR.

This type of card can be a good option if you have expensive consumer debts, such as an overdraft or loan, that you want to reduce or pay off at 0% interest. 

But cardholders should take note of the end date of their 0% offer to avoid paying much higher interest on the balance. There’s also usually an upfront fee, which is charged as a percentage of the amount you borrow and then added to the loan. Fees on money transfer cards tend to be a little more than balance transfer alternatives, at around 4%.

Travel credit cards

If you spend time overseas or want a card that offers cheaper spending abroad for holidays or business trips, then a travel credit card could be suitable. 

The benefit of a travel card is low or no foreign transaction fees on spending (and sometimes also on cash withdrawals) overseas. Savvy cardholders who take a specialist travel card abroad could save hundreds of pounds in fees and charges over the years.

Travel credit cards may have fairly high standard interest rates however, so they won’t be the cheapest cards if you carry a balance on the card from month to month. They’ll work best for those who can pay off their card in full each month.

Credit builder cards

This type of credit card can help those with a low credit score, who might have struggled with debts in the past, or people who haven’t had credit before so have little to no credit history. Credit cards for bad credit or credit builder cards tend to offer a low credit limit, compared to standard credit cards, starting from around £100 or £200 for example, and the interest rate or APRs will be relatively high – above 30% in many cases.

But the aim of this type of card is that if used to its best advantage, the cardholder can start to improve their credit score over time. This should then open the door to a higher credit limit, lower interest rates and better credit card deals.

Premium credit cards

Premium credit cards offer rewards, cashback and perks, such as free airport lounge access, but they tend to have strict eligibility criteria, which might include a minimum income requirement. The majority of premium cards also apply a monthly or annual fee.

This type of card can offer valuable benefits, so if you’re eligible they may be worth considering. But they work best if you can clear your balance in full each month as the prevailing interest rate will usually be relatively high. You’ll also want to be sure that any perks and rewards you’re receiving outweigh the fee.

Student credit cards

A credit card can be a useful budgeting tool for students. But choice is likely to be fairly limited. Some high street banks will offer their student customers a credit card if they already have a student bank account with them. 

Credit limits on student credit cards are likely to be relatively small and the interest rates might be quite high. Check that the deal is going to suit your needs before you sign up and only take one if you know you’ll be able to repay the debt before paying any interest. 

Specialist credit card providers that target the subprime or bad credit market, can also offer cards to students. Again, the credit limits will be low and interest rates can be relatively high, so students should tread with extreme caution.

Business credit cards

Lots of businesses use credit cards as a budgeting tool and as a way to manage cash flow. Most major banks and card providers offer business credit cards, and some offer benefits and perks, such as cashback or rewards, on spending made by the company.

The eligibility requirements for business credit cards and the deals on offer, including interest rates, will vary widely across the market, so it pays to shop around if you’re choosing a new card account for your business.

What type of credit card should I get?

The type of credit card you should get will depend on what you need it for. 

Do you want rewards, cashback or other perks? Are you looking for a lower or 0% interest period to help clear other more expensive debts? Or maybe you’re looking for a card to help boost your credit score? 

Regardless of which type of card you have in mind, you’ll need to meet any specific eligibility requirements of the card. Your credit history and score is likely to be crucial here. But most card providers offer an eligibility checker service online, so you can see if you’re likely to be accepted for a card before you formally apply. 

This ‘soft’ eligibility check won’t show up on your credit report, and it should give you a fair idea of whether or not you’ll get the card, and on what terms and interest rate.

Think carefully about the various features of a credit card and whether it will fit with your lifestyle, spending and budgeting needs. Importantly, if you know you can’t clear your credit card balance every month then you will be paying interest on the debt, so finding the lowest possible interest rate is a priority.

How many different credit cards should I hold?

There’s no limit to how many cards you can hold if you’re accepted by the card providers, and it can be beneficial to have different types of credit cards for different uses, provided you can manage them responsibly. 

But it is important to note that having access to a large amount of credit (even if it is not all utilised) can sometimes have a negative impact on your credit score.

In addition, if you are worried that you could build up multiple debt balances on different cards, it may be preferable to restrict the number of credit cards you hold. 

Having a high credit utilisation ratio (the percentage of your credit limit which you’re using) –  or worse, missing a monthly card payment or exceeding your credit limit – can damage your credit score and affect your ability to borrow in future.

Can I get a credit card if I have bad credit?

It can still be possible to get a credit card even if you’ve struggled with debts in the past and have a low credit score. There are specialist lenders who can offer credit builder cards to those who meet the lending criteria and are looking to grow their credit score over time. 

Used well, a credit builder card can help get your credit score back on track, which should open the door to cheaper borrowing.

But credit builder cards (sometimes known as credit cards for bad credit) offer low credit limits (typically only a few hundred pounds, for example), and they tend to have relatively high interest rates, typically over 30% APR.