Understanding Different Types Of Credit Cards

Benefits and drawbacks of each option.

Updated: June 9, 2024
Matt Crabtree

Written By

Matt Crabtree

Rebecca Goodman

Edited By

Rebecca Goodman

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Ever feel slightly overwhelmed when looking for a new credit card? No surprise — from a rewards credit card to a money transfer credit card, there's a huge amount of credit cards to wrap your head around when you're trying to borrow some money.

Still, it's important to understand all the options so you can find one that's right for you, which can in turn allow you to reduce your credit card bill, build credit, and even earn cashback or rewards.

Every person needs something slightly different out of their credit card, so your best option will probably be different to a friend's and you can make poor decisions if you don't properly compare credit cards.

In this article, you'll learn how to apply for a credit card, what credit cards there are, the pros and cons of using a credit card, and what to watch out for.

Reward credit cards

These cards work exactly like regular credit cards, but they come with extra rewards for using them, usually dependent on the amount you spend.

Different types of rewards

Have you ever heard of a cashback rewards card? These work like your average credit card but will give you a specific percentage of how much you spend back in cash. For instance, if you spend £100 on food shopping and your credit card offers 2% cash back, you'll get £2 back as a reward.

Points rewards cards work similarly, but instead of giving you money back, they offer points. Once you've stacked up enough points, they can be used to redeem rewards like gift cards or travel experiences.

Finally, you can also get “miles rewards” which you can redeem for flights and various other travel expenses.

Benefits ✔️

If you're going to make payments on your everyday spending anyway, you may as well receive some extra rewards along the way.

As long as you clear your balance each month, these cards can also help with boosting your credit score over time, adding to your overall credit history too.

Drawbacks ❌️

The amount of interest you pay will depend on the card and the credit card provider, but most of these cars have higher interest rates and fees than your everyday credit card.

So, if you're carrying a balance at any point, there's a good chance you'll have to pay more in interest charges than you're actually receiving in rewards, defeating the whole purpose.

Balance transfer credit cards

Balance transfer cards are a type of credit card used as a way to reduce debts. You can also consolidate existing balances of your other credit cards in one location.

If you have an expensive debt on a credit card, where you're paying a high rate of interest, you can move this money onto the new card, and you won't pay any interest for a set period of time. This gives you time to focus on clearing the debt.

Why would you need a balance transfer card?

If you currently have multiple credit card balances with fairly high-interest rates, it may be a struggle to keep up with monthly payments, and you could be trapped in a cycle of debt.

By transferring your various balances to a new credit card with a 0% APR period, it's a lot easier to pay off your debt as the burden of interest will be lifted.

But these cards aren't without their pitfalls either — there's typically a balance transfer fee (usually up to around 5% of the amount transferred). You'll also start paying interest when the 0% period ends if you haven't cleared your debt by this time.

Let's consider a few pros and cons you can expect with a balance transfer card.

Benefits ✔️

Firstly, it's worth reiterating that the whole point of these cards is to take advantage of their promotional periods with no interest.

Not only this but consolidating all of your different credit card debts into one easy-to-manage account makes staying on top of your finances much more simple.

Lastly, there's a great chance to improve your credit rating with one of these cards too if you are able to clear your debt within the 0% period.

Drawbacks ❌️

There's typically a 5% fee that comes with most balance transfers, so this can be problematic if you're not in the position to pay that. In addition, these aren't an interest free credit card forever — you'll be straight back to a high-interest rate after this period which can cause issues if you've still not paid your debts.

Student credit cards

For university students looking to start their credit journey (or simply just learn about responsible credit usage), student credit cards are a popular option.

These cards were made specifically with students in mind and usually come with a few unique benefits and features that students might appreciate.

What are student credit cards?

These cards are for students starting to build their credit history or even improve their current credit scores. In general, these cards come with quite a low credit limit, so it's a lot easier for students to manage their spending and avoid overspending.

In regard to some of the benefits, there's usually some kind of rewards program that'll help students save money on purchases like textbooks or food shopping too.

Benefits ✔️

Since most students won't have any credit history, let alone a long history, these kinds of cards can be vital for helping young people gain a solid footing with credit rating agencies. They are also handy to have in emergencies.

Drawbacks ❌️

Although there's a fairly low credit limit on these cards, these cards can often still come with higher interest rates than most other credit cards, meaning some students might end up paying a lot of interest charges if they carry a balance.

Related guides:


What is a Reward Point System?

What are Joint Credit Cards?

What is a Credit Limit?

What is a Credit Card Issuer?

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