Credit cards are essential for much of today's commerce — even if you want to avoid debt, you may need a card for on-line purchases, and booking hotels or flights. But given the hundreds of different cards on the market -- each designed for people with different incomes, lifestyles and values — finding the perfect credit card can be tricky. Here's an overview of some of the most common types of cards and their benefits, so you can determine which is right for you:
Loyalty rewards cards:
These cards offer you points that can be redeemed for items such as cash, merchandise, groceries or gifts. If you use a brand or service regularly — for instance if are a frequent moviegoer or regularly use a particular gas station — you may benefit from a rewards card, even if it has a yearly fee.
Frequent-flier cards:
These cards are of benefit if you are a regular traveller for business or pleasure. Like other loyalty cards, they allow you to accumulate points (or miles) that are redeemable directly for free flights, discounts or upgrades. Some frequent-flier cards may also offer travel benefits such as insurance for flights or automobile rentals and discounts at hotels or restaurants.
Cash-back cards:
These allow cardholders to get a portion of their purchases back as a cash reward. Generally, this cash reward is paid out annually, and to be eligible you shouldn't miss any of your minimum monthly payments. The amount of cash-back earned for each purchase depends on the dollar amount of the purchase and the terms and conditions of the reward plan.
Student cards:
Although students typically have modest incomes and try to avoid debt, student cards can be useful for younger people looking to establish a credit rating for their future. Usually student cards have low interest rates, low or no annual fees and relatively low credit limits.
Prepaid/debit-linked cards:
These are not 'credit cards' in the traditional sense as they don't involve debt and won't impact your credit rating - positively or negatively. With a pre-paid card, you deposit money on the card and reload it as needed. A debit-linked card will be tied to the amount you hold in your bank account, although it will be branded with a major international card firm and will have wider use than most bank-issued ATM cards. For instance, it will allow for purchases online or outside of Canada.
Charity cards:
If you want to give something back while you are spending, you may wish to consider a credit card that is affiliated with a charity rewards program. With these cards, you earn points for purchases, but these rewards go to a charity of your choice - perhaps an environmental agency or poverty-alleviation group.
As well as the rewards or incentives offered, remember to look at the bottom line when applying for any card - particularly the interest rate and possible annual fees. Be aware that some cards offer 'teaser rates,' which are low interest rates that will be increased after an introductory period. You should always look at the annual percentage rate (APR) for the true cost of borrowing. By weighing these factors alongside the benefits of reward or loyalty programs, you can decide which card is best for you.
