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Credit Cards Explained

What type of credit card is best for you?

When it comes to credit cards there is no shortage of variety. Cash rewards, air miles, points toward a myriad of merchandise, and the list goes on. How do you know which credit card is best for your needs and lifestyle?

In order to determine the card that best meets your needs, a good place to start is with a credit card comparison. There are some great tools available on the web to help consumers choose the right card to suit their needs.

When shopping for a credit card there are two factors that need to be taken into account before you begin your search: your credit score and how you plan to use the credit card once you get it.

Your Credit Score - Apply for a credit card that is designed for people with credit scores similar to yours. If you apply for a platinum card but have a credit score of 575 you will be declined and this will lower your score even further.

Your Goals - Whether you want to earn rewards, need a low interest rate or are trying to rebuild your credit, once you decide, select several cards that offer what you are looking for and compare terms, fees and annual percentage rates (APR) to see which one offers the best deal.

Be sure to read the fine print to review any fees, rewards program terms, the annual percentage rate and anything else that could impact your pocketbook. By law, credit card companies are required to disclose this information.

The four basic types of credit cards are:

* Bad Credit

* Rewards

* Secured

* Student

Bad Credit Cards - This type of card is offered to people who have very low credit scores or have had difficulties such as habitual late payments, recent debt settlement or have filed bankruptcy. The bad credit card usually has an annual fee with interest rates ranging between 15% and 20% and can be useful when rebuilding your credit.

Rewards Cards - Rewards cards require good to excellent credit and sometimes have an annual fee and interest rates typically starting at around 10% to 12%. Rewards vary and can include: airline miles, cash back, points or credits at specified vendors. For those who pay their balances in full each month, rewards cards are great for grocery shopping and bill payment. How often do you get paid to shop?

Secured Cards - This is a great way to start building or rebuilding your credit if you have had some problems in the past. To open a secured credit card account you deposit funds into a savings account that serves as a guarantee of payment. The credit line is usually equal to the amount you deposit. The card works the same as a non-secured credit card for making purchases and payments are made the same as with any other credit card. Your payment activity is regularly reported to the credit bureau so if you maintain a good payment history your credit score will improve.

Student Cards - Usually featuring a trendy card image and rewards appealing to students, approval for these cards can require no credit history at all to excellent credit, depending on the offer. Interest rates typically start at around 14% and rewards can include cash back at restaurants, online shopping sites and for some student specific purchases.

Now, go to different banks, see what type of interest rates they give you, read carefully, read carefully and yet again-read carefully so that you can compare credit cards, and remember-don't spend what you don't have. If you have a habit of spending too much, don't use it.

More Stories By Anne Lee

Anne Lee is a freelance technology journalist, a wife and a mother of two.