One of the simplest and most flexible ways to build credit is to use a card. Yet, with so many different card types available today, it can be hard to know which one is best for you. With this guide, you'll learn how to pick the right credit card based on your lifestyle and spending habits.
A credit card is a payment method that allows you to buy things without cash. You can use them at stores, online, and to withdraw money from an ATM. However, you will usually pay a fee to withdraw money from a credit card.
The bank or other financial institution issues you a credit card, and it's linked to your bank account. When you use a credit card to make a purchase, the merchant charges the money to your credit card account.
With cash or a debit card, you pay for purchases up front, and money is withdrawn from your bank account immediately Alternatively, with a credit card since you are borrowing money from someone else, you will make monthly payments with interest until the purchase is paid off. However, the store or company that sold you a product or service receives payment immediately when you use a credit card.
Rewards options are a great way to earn free stuff and get discounts, but not all credit cards offer the same reward. Some cards give you money back as a reward, while others allow you to accumulate points that can be used for free night stays at hotels. There are three main types of cards: cashback cards, travel cards, and balance transfer cards.
Cashback cards are the most common type of reward credit card. When you make a purchase with a cashback card, you get a percentage of the cost of the product or service returned to you in cashback credits. You can choose to have the cashback deposited into your checking account or applied toward the credit card bill.
Travel cards allow you to get rental cars and travel insurance. But they also offer higher reward rates on flights and hotels if you book through their website.
Balance transfer cards offer 0% interest on balance transfers for 12-24 months. Sometimes, you can get a balance transfer with a 0% interest rate longer than 24 months. Balance transfer cards can be a good option if you need to pay off debt without paying interest to the lender.