Saturday, August 13, 2011

The Issuer and Credit Card Types

Article originally published on NYSE Euronext
08/13/2011

Credit cards are available from countless banks, lenders, retail establishments and other issuers. The specific type of card you obtain depends on your income, credit history and intentions with respect to the card's use. As the plethora of available card types and lenders offering them continues to increase, it's easy to become confused and find yourself struggling to make a decision.

Traditional Credit Cards
Traditional credit cards are the oldest and simplest type. The card may be presented for payment at nearly any retail establishment. The cost of your purchases is covered by the issuer, which sends you a monthly bill for a portion of the total balance owed plus interest.

Pre-Paid Credit Cards
Pre-paid credit cards are used to repair or establish credit history. You send the credit card company an amount of money equal to your desired credit line. When you use the card for purchases, the lender covers the bill up to your maximum deposit, then sends you a monthly invoice for a portion of the total amount. Your deposit acts as collateral or protection against nonpayment.

Secured Credit Cards
Secured credit cards are very similar to pre-paid credit cards. You send the lender a pre-determined amount of money that acts as collateral or protection against nonpayment of your monthly bill. However, unlike pre-paid cards — for which your maximum credit line is equal to your deposit — secured cards extend credit amounts representing a multiple of the deposit. For example, if your deposit is $250 you might receive a credit line of $500.

Premium Credit Cards
Premium credit cards work the same way as traditional credit cards, but they are issued to wealthier customers. Credit lines on premium cards are often in the tens of thousands of dollars. Issuers offer perks to holders of such cards, including simple life insurance or disability insurance policies, identity theft protection services and product warranties that extend above and beyond the original manufacturer's warranty.

Retail Store Credit Cards
Retail store credit cards work the same way as traditional credit cards, but they may be used to make purchases at only one retail establishment. Many retail stores encourage shoppers to apply for a credit card through incentives such as reductions in price or customized coupons.

Rewards Credit Cards
Rewards credit cards are simply traditional cards with perks. For example, frequent flyer cards generate points you may use to reduce the cost of your next plane ticket. Cash-back cards generate a refund equal to a small percentage of your total purchases. General rewards cards issue points for every purchase. The points may be used toward the purchase of additional goods or services.

References
CreditCards.com: Comparing the Various Types of Credit Cards

Resources (Further Reading)