Introduction to Credit

The definition of credit is expanding as more companies want to know your credit history before doing business with you. For example, did you know a cell phone company gives you one month of service as a "credit" in expectation that you'll pay for your usage once that month is up. That's right. Anytime you're given a product or service before you pay for it, you're being extended credit. Of course, that includes being allowed to use someone else's money.

Types of Credit Cards

Since each person's financial needs are different, it makes sense that there are different types of credit cards. Before you apply for a credit card, become familiar with the various kinds of credit cards to make sure you're choosing the best credit card for you.



Standard Credit Cards
The most common type of credit card allows you to have a revolving balance up to a certain credit limit. Credit is used up when you make a purchase and made available again once you've made a payment. A finance charge is applied to outstanding balances at the end of each month. Credit cards have a minimum payment that must be paid by a certain due date to avoid late-payment penalties.



Premium Credit Cards
These cards offer incentives and benefits beyond that of a regular credit card. Examples of premium credit cards are Gold and Platinum cards that offer cash back, reward points, travel upgrades, and other rewards to cardholders. Premium cards can have higher fees and usually have minimum income and credit score requirements.


Both standard credit cards and premium credit cards have specific types of credit cards. Student credit cards, zero percent interest cards, and travel cards are just a few types available.



Charge Cards
Charge cards do not have a credit limit. The balance on a charge card must be paid in full at the end of each month. Charge cards typically do not have a finance charge or minimum payment since the balance is to be paid in full. Late payments are subject to a fee, charge restrictions, or card cancellation depending on your card agreement.

Limited Purpose Cards
Limited purpose credit cards can only be used at specific locations. Limited purpose cards are used like credit cards with a minimum payment and finance charge. Store credit cards and gas credit cards are examples of limited purpose credit cards.


Secured Credit Cards
Secured credit cards are an option for those without a credit history or those with blemished credit. Secured cards require a security deposit to be placed on the card. The credit limit on a secured credit card is equal to the amount of the deposit made. Secured credit cards have revolving balances depending on the purchases and payments made.


Prepaid Credit Cards
Prepaid credit cards require the cardholder to load money onto the card before the card can be used. Purchases are withdrawn from the card's balance. The credit limit does not renew until more money is loaded onto the card. Prepaid cards do not have finance charges or minimum payments since the balance is withdrawn from the deposit. Prepaid cards are similar to debit cards, but are not tied to a checking account.


Business Credit Cards
Business credit cards are designed specifically for business use. They provide business owners with an easy method of keeping business and personal transactions separate. There are standard business credit and charge cards available.