Different types of credit card

The basic function of a credit card is to give the cardholder access to ongoing credit, which can be used to purchase goods and services or to withdraw cash. Key things to consider when choosing a credit card include the credit limit, the interest rate and any perks that come with using the card. However, there’s also a range of features that come with credit cards that might be appropriate, depending on your financial circumstances, employment status and lifestyle.

The type of cards you can apply for will be affected by our credit history, so before you start applying for credit cards, it can be useful to have an idea of what is on your credit report. You can read more about applying for credit cards in this article, and how your credit history might affect applications. For more information on payment cards in general, including debit cards and how to avoid card fraud, you can read our payment card article.

Credit cards for poor credit

Having a poor or limited credit history can reduce your options when it comes to getting credit. Many lenders will be reluctant to lend to someone who has previously missed payments or defaulted on loans. However, there are cards aimed at people with poor credit history. They usually come with lower spending limits and higher interest rates, but can be useful if used responsibly. You can learn more about getting credit cards with bad credit history here.

Credit builder cards

Credit builder cards can sometimes be used by people with poor credit history as a way of helping to improve it. The name ‘credit builder’ refers to the process of building a credit history. If you have never had a credit card before, this can mean that lenders have no evidence of how responsible you are with credit. So even though you have no missed payments or defaults, you might still have trouble getting certain cards. As well as being useful for people with no credit history, credit builder cards can help someone with a poor credit history demonstrate that they can make repayments on time.

Prepaid credit cards

Prepaid credit cards are not actually credit cards, even though you may sometimes see this phrase used. Credit cards are products that give you access to credit, with a prepaid card you are spending money that you have already added to your account. Prepaid cards can be useful for people who don’t have access to other types of payment card, if they are travelling abroad or cannot open a bank account.

Balance Transfer cards

Transferring a balance from one credit card to another is one way of reducing the amount of interest that is being paid back. Credit card lenders will often use 0% balance transfers as a way of attracting customers away from their current card provider. Essentially, the debt on one card is moved to another, and for an agreed period of time, no interest is charged.

There can often be a fee charged to carry out the transfer, equivalent to a certain percentage of the balance. It’s important to calculate how much this fee is compared to any savings in interest payments, as well as planning for how to make repayments when the 0% period ends.

Cash back credit cards

Some credit cards come with incentives that encourage the holder to use the card for more of their spending. Some might offer air miles, tickets to concerts or gadgets, but cash back credit cards actually offer money back on purchases. So, whenever you use the card to buy something, a small percentage – usually around 1% - will be paid back into your account.

Cash back credit cards are useful for people who plan on using their card for a lot of purchases, and also plan on paying off their balance each month. If you aren’t paying the card off in full each month and the amount of interest is larger than the cash back incentive, then there won’t be any value in a cash back card.

Student credit cards

Student cards are aimed at people studying at University and are similar to credit builder cards, in that they help younger people start to build a credit history. These cards will often be attached to student current account products, and you will need to prove that you are in fact a student to get one.

Student cards still carry the same responsibilities as regular credit cards. Missed payments, a poor credit history or irresponsible borrowing will make it more difficult to get a card as a student, and in the future.

If you are thinking about applying for a credit card and want to know more about your credit history, you can get online access to your credit report with your Equifax Credit Report & Score, which is free for 30 days and £14.95 a month thereafter.