4 essential types of credit cards


By Jeanine Skowronski, CardRatings.com


Unless you’re prone to overspending, in which case you should limit the amount of plastic you pack in your wallet, there are advantages to having more than one credit card at your disposal. To take advantage of the many features and benefits of credit cards, it can be worthwhile to carry four distinct types of cards for each free credit card processing service.

For one thing, when used responsibly, multiple lines of credit can help boost your credit scores.

“If you only have one card you’re managing responsibly, that’s not nearly as positive as managing several cards responsibly,” says Maxine Sweet, the vice president of public education for Experian.

Moreover, different categories of credit cards are tailored to meet specific needs. Here are the four types of cards you should slowly add to your payment arsenal in order to earn more rewards, spend less on interest and build solid credit scores.


1. A rewards card (or two) in an area where you already spend money

Debit card rewards are largely defunct, thanks to legislation limiting the amount of money issuers can charge merchants who accept the payment method. Credit card rewards programs, on the other hand, are thriving as companies try to woo back credit-shy consumers.

While the earning potential means it quite literally pays to have a great rewards card in your wallet, you shouldn’t grab every swanky rewards card your credit scores qualify you for. Instead, choose one solid card featuring high rewards on a purchase category you spend a lot of money on anyway. Remember, the idea is to earn rewards on spending, so you shouldn’t spend just to earn rewards.

“The card has to fit your lifestyle,” says Bruce McClary, the director of media relations for ClearPoint Credit Counseling Solutions. Foodies might opt for a card that provides the most cash back at restaurants, while commuters may want to go with a great gas rebate card.

If you travel a lot, it may be a good idea to add a travel rewards card to your collection. These cards can be used to maximize points or miles on airfare and hotel accommodations, while a general rewards card can be used for everyday purchases.

2. A credit card from the same bank that issues your debit card

Rewards cards are great for getting something back on your purchases, but they’re only worth it if you plan to pay off the monthly balances in full.

“There’s going to be a higher cost associated with these cards,” McClary says. This generally includes higher annual percentage rates (APRs) and lofty annual fees.

To ensure you don’t wind up with a big balance at the end of the month, consider paying off purchases as you make them or weekly using a linked debit card account.

“That’s how you’re able to leverage rewards on everyday spending,” says Laura Creamer, a financial education specialist with nonprofit credit counseling organization CredAbility.

You can usually use any debit card to pay off a credit card. However, having both cards from the same issuer can expedite payments and make it easier to track your spending, because you can log into one website to view and adjust both accounts.

3. A low-interest credit card

Despite your best intentions, there may come a time when you wind up with a balance you can’t pay off in full. Your car may need unexpected repairs or your washing machine may stop working. In these instances, it’s great to have a credit card with a low, fixed APR on hand.

“I have a low-interest card that I use on large purchases,” Creamer says. This option will cost you less in interest as you pay down the balance. Low-interest rate cards typically carry an APR from 8% to 10%.

4. Your oldest credit card

Even if it duplicates one or more of the above categories, you should hold on to the student credit card you impulsively opened during Welcome Week at college. Closing cards with long histories can damage your credit scores, as can reducing your available credit.

According to Sweet, closing an account can raise your credit utilization ratio — the amount of credit you use as a percentage of your overall available credit — to levels that damage your scores. A credit utilization ratio greater than 20% to 30% can push down your FICO score, limiting your ability to qualify for the best credit cards and loan terms.

Closing the account can also ultimately affect the age of your credit report, as closed accounts are completely removed from a person’s credit file after 10 years. So hold on to that old card, and remember to break it out every now and then for a small purchase to keep the account active.

“After the economy crashed, (lenders) became much more careful about looking at their portfolios and closing accounts that were costing them money,” Sweet says. Using that old card every so often can avoid maintenance fees, or worse, having the credit line dry up.