Types of credit cards
There are four basic types of credit cards.
From the standpoint of consumer convenience, each has its merits. Things look very different, however, when you consider interest rates and yearly fees charged.
1. Seller credit cards (store cards) i.e. merchants (Sears, JC Penney, May Co., etc.), oil companies (UNOCAL, Shell, etc.), airlines, etc.
These are all individual business charge account cards and necessarily can only be used at that company's store. Generally, there is no yearly fee and interest rates are very high.
2. Bankcards i.e., Visa and MasterCard.
These are issued by banks and institutions under a licensing agreement with the Visa and MasterCard organization. Under the franchise, each issuing member must honor the drafts of another member for payment. There are literally thousands of financial members all over the world that want to issue credit cards, so the competition is fierce. Be sure to shop for the best terms and conditions. In addition to making charge purchases possible, Visa and MasterCard allow consumers to receive cash advances.
3. Travel and entertainment cards i.e., American Express, Carte Blanche and Diner's Club.
There is a yearly fee, and any purchases made must be paid for in full at the end of the billing period. There is no cash advance service with these types of cards unless you have a premium account. Because you must pay in full each billing period, these cards have greater credit requirements and more stringent terms and conditions of use. Hence, they are tougher to get.
4. Debit cards (ATM or plastic checkbook cards).
These cards look similar to a credit card and can be used the same way. However, any purchases made are immediately deducted from your checking or savings account. In order to pay for purchases with these cards, there must be "Point Of Sale" or "Point Of Purchase" equipment available to transmit the purchase information to your bank and credit the merchant's account with the sales revenue.
These are all individual business charge account cards and necessarily can only be used at that company's store. Generally, there is no yearly fee and interest rates are very high.
2. Bankcards i.e., Visa and MasterCard.
These are issued by banks and institutions under a licensing agreement with the Visa and MasterCard organization. Under the franchise, each issuing member must honor the drafts of another member for payment. There are literally thousands of financial members all over the world that want to issue credit cards, so the competition is fierce. Be sure to shop for the best terms and conditions. In addition to making charge purchases possible, Visa and MasterCard allow consumers to receive cash advances.
3. Travel and entertainment cards i.e., American Express, Carte Blanche and Diner's Club.
There is a yearly fee, and any purchases made must be paid for in full at the end of the billing period. There is no cash advance service with these types of cards unless you have a premium account. Because you must pay in full each billing period, these cards have greater credit requirements and more stringent terms and conditions of use. Hence, they are tougher to get.
4. Debit cards (ATM or plastic checkbook cards).
These cards look similar to a credit card and can be used the same way. However, any purchases made are immediately deducted from your checking or savings account. In order to pay for purchases with these cards, there must be "Point Of Sale" or "Point Of Purchase" equipment available to transmit the purchase information to your bank and credit the merchant's account with the sales revenue.
Using this type of card means you lose the "float" (time between purchase and payment), and you can't spend more than you have in the bank. There really is no advantage to using a debit card other than knowing you cannot spend more than what you have.
Secured cards are a special type of bankcard. The term "secured" means that something is attached or being held to give security. A secured credit card is issued because the cardholder has deposited money, in the form of a CD or savings account, with the card-issuing institution (bank or savings and loan). The money is the security for any charge or balance incurred on the account. During the term of the credit card account, the deposit is frozen by the institution and is not accessible to the cardholder. The deposit is released only when the account is terminated by the cardholder or when the financial institution changes the conditions under which the credit card account is secured.
Some banks, even with a deposit, may not accept applicants who have current credit problems such as pending judgments against credit charge-offs or recent court bankruptcy filings or granting. Always ask what the secured credit card requirements are before you apply. If one bank says no, don't give up. Just go to the next bank.
Secured cards should only be sought when all efforts to acquire an unsecured card have been exhausted. Secured cards seem to be better at first because their interest rates are lower. However, under closer scrutiny, the cash deposit is offsetting the difference in interest. There really are no benefits over a regular card. But when one is trying to reestablish credit, or trying to establish credit for the first time, the secured credit card is an excellent stepping stone.
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