Standard or Rewards — Which Card Should You Choose?

all credit cardsThere are so many different types of credit card available that it can be down right impossible to make a choice. This article will point out the differences between standard credit cards and rewards cards. This will help you determine which card is best suited for you. There are other card types that are available on the market that are not covered in this article, but the information listed below will give you a good place to start as you are searching for a card.

Standard Credit Cards (No Rewards)

Standard credit cards are the most common cards out there and are available from most banks or financial groups. They are a line of credit so your credit history is a factor when you apply. These cards are unsecured, which means they do not require a security deposit. The APR you receive is based on your creditworthiness and so can the annual fee you are required to pay. The way the annual percentage rate is offered or calculated for these cards can vary and is based on the prime rate. There are basically two types of standard credit cards: balance transfer credit card and a low interest credit card.

  • Balance transfer credit cards: A balance transfer credit cards allow consumers to transfer a high interest credit card balance onto a credit card with a low interest rate. Typical in the market today are balance transfer credit cards with an introductory annual percentage rate (APR) of 0 percent, with that introductory or “teaser” rate lasting several months up to a year. The terms of balance transfer credit cards varies between offers, so be sure to thoroughly read the terms and conditions for each card.
  • Low interest credit cards: A low interest credit cards offer either a low introductory APR that jumps to a higher rate after a certain period, or a single low fixed-rate APR. Low interest cards can be very useful when consumers need make a large purchase because it allows several months to a year to pay it off with very low or no interest. Before using a low interest card, read all the terms and conditions of the introductory rate so you will not be surprised by fees or accumulated interest.

Rewards Credit Cards

Rewards credit cards are my personal favorite because they give you an incentive for making purchases with the card. Often that incentive is free money. It basically works by accumulating points for each dollar you charge tot he card and then you can cash in your points for various rewards. Rewards cards are often more appealing than standard cards because you can get something back for the money you spend. Usually these cards require you to have a better than average credit history.

  • Cash Back Credit Cards: Cash back credit cards allow you to earn cash rewards for making purchases with your card. The idea behind the way it works is simple, the more you use your card the more cash back you earn. There are many cash back cards out there that allow users to earn 1% back of their total purchases. Some cards offer a higher percentage of cash back when you spend more on your card and others offer a higher percentage based on the type of purchases you make. These cash back cards usually have an annual fee. If you use your card appropriately and pay your balance off each month, a cash back credit card can earn the cardholder a significant amount of money over time.
  • Basic Rewards Points Card: A points rewards credit card is similar to a cash back card in that the user accumulates points towards based on the rewards structure. You accumulate points based on the amount you spend on your card. These rewards cards offer cardholders a variety of items to cash points in for: gift cards, electronics, hotel stays, plane tickets, jewelry, pet supplies and more. Each rewards program works differently and the promotional offers can even change. Check your cards terms and conditions to see how their specific program works. It is common for these cards to have annual fees, but you might find some that don’t.
  • Travel Points Credit Cards: A travel points credit card is specific to hotels and travel. Some cards are even co-branded with hotels, like the Citi® Hilton HHonorsTM Reserve Card. These types of credit cards allow you to earn points your purchases and often give additional points when you make purchases ay specific hotels. You points can be redeemed for free hotel stays and even upgrades. With the Blue Sky from American Express® card you can apply your points towards plane tickets, hotel stays, rental car use or cruises. Many of these cards come with an annual fee and if your not a big traveling the annual fee might not be worth it to you.
  • Gas Rebate Cards: When it comes to gas rebate credit cards there are two different types of gas cards: general and brand-specific. General cards can be used anywhere, but brand-specific cards can only be used at specific gas stations. The Blue Cash Preferred® Card from American Express If you travel often, you might not be able to find a specific gas station so you might want to consider that too.
  • Airline Miles & Frequent Flyer Credit Cards: An airline miles credit card is specifically designed to reward users with air travel. There are certain general reward credit cards that do allow points to be redeemed for plane tickets among other things but those are not considered airline miles cards. An airline miles card allows cardmembers to earn airline mile credits whenever they make purchases. Some cards are co-branded with a specific airline, and some aren’t which means they can be redeemed for tickets with a variety of airlines. Points can be redeemed for airline travel, much like frequent flier miles.

Photo Credit: shawnzrossi via flickr

About Michal Cheney

Michal Cheney is a personal finance blogger who writes for several top personal finance blogs, such as Dough Roller and Go Banking Rates. She enjoys writing about money management, getting out of debt and planning for retirement. Her practical approach encourages folks to get serious about their relationship with their money.