Types of Credit Cards

A couple of years ago those really attractive zero percent introductory rates on credit cards vanished in the wake of the subprime mortgage and global credit crisis. Banks and other card companies were afraid to lend at such low rates because consumers were defaulting at a record pace and the economic outlook was the worst it had been since the Great Depression. But now, despite the fact that unemployment is still high and people are still suffering from the impact of a lingering global recession, card companies and consumers are both more optimistic. One sign of increased hope and a return to more normalized consumer credit lending is that lots of credit card companies are once again offering zero percent interest rates on purchases and balances transfers, as a way to gain market share from their competitors and get consumers back into the habit of using plastic for their purchases.

No interest is a really good deal if it is managed smartly, and with many excellent credit card offers sporting teaser introductory deals that let you avoid paying any interest for up to 12 months, these promotions are rather persuasive and tempting. But as is true with any credit card offering, consumers are wise to first read all the terms and conditions before signing up for a new card based solely on the zero-interest come-on tactic.

If you plan to transfer a balance from another card, for example, keep in mind that you most likely get charged five percent just to make the transfer. The fee is not a recurring charge like your interest rate, however, but it will reduce your overall savings. On smaller transfers the fee is $10, so if you are only transferring $150, for example, you’ll wind up paying a fee of nearly seven percent. But if you are currently carrying a hefty balance and are paying a really high interest rate, then a zero percent introductory offer good for a whole year might be just what the doctor ordered. Let’s say, for example, that you are currently paying 25 percent interest on a balance of $5,000. Every four years your outstanding balance will practically double at that high rate, which makes it virtually impossible to win.

But if you can transfer to a zero interest rate card you’ll immediately start saving 25 percent interest – minus your five percent or $250 transfer fee. A year of free interest on $5,000 compared to a year of 25 percent interest is equal to savings of $1,000 – even after deducting the $250 fee. That’s just like putting an extra $80 in your bank account each month, which makes it a pretty compelling strategy for reducing your debt and saving some cash. Apply that additional savings of $1,000 to pay down your debt and you can finish up the year in much healthier financial shape.

The problem with this scenario, of course, is that although it seems like a dream now, you could wake up 12 months from now to a completely different situation. That’s because your interest rate of zero percent will expire then, and then it will likely surge up to 20 percent or so. But if you’re already paying 20 percent or more now, then you’ll come out ahead even after the intro rate expires because you’ll save for a whole year before that happens.

Unfortunately, most people who need this kind of opportunity won’t get these attractive offers, however, because they just don’t have good enough credit. The majority of these 12-month zero-interest offers are being sent to people who have managed to pay off their credit cards and get free of debt. Those with the really crazy high rates of 25 percent and up, on the other hand, probably wound up paying such exorbitant rates because they missed a payment or made a late payment along the way. The card companies used to cater to those kinds of people who don’t manage debt very well, believe it or not, because the card companies would make so much extra revenue off of them in late fees, penalties, and other charges. So despite the fact that the people were destined to go into default, the credit card lenders did not seem to care – as long as they were making money hand over fist through penalties.

But that approach to lending – typified by the subprime racket – proved to be a disaster. These days card companies are still interested in people who carry debt – because that’s how card companies make money – but they are trying to win the business of those that also manage debt effectively and don’t miss payments.

If you’re lucky, you’re somewhere in between and are being offered zero percent interest although you do have some high interest debt that you could transfer. In that case you should definitely sit down and carefully crunch the numbers to find out what your overall net savings might be if you manage your credit cards skillfully. You may be able to leverage an attractive offer to your advantage and pay off some debt over the next 12 months.

Everyone has seen the infomercials and newspaper ads about selling gold because gold prices are historically high. But while you may not be ready to trade in your high school ring or grandmother’s necklace quite yet, you can start investing in gold by applying for a new kind of credit card that has a credit limit determined by current gold prices.

A company by the name of Gold Solutions Marketing in Florida is the brainchild behind the gold card. But unlike the American Express gold card or other VIP cardholder cards that are gold, this one is backed by gold that is held in a special vault in Delaware. Your credit card is tied to that gold so that the precious metal acts like collateral, and then as a cardholder you are given a credit limit that is equal to about 75 percent of the value of that gold bullion.

Credit card activity will be reported to the credit bureaus just like with a normal credit card, and because gold prices continually fluctuate the card limit will be reviewed at least once a year and adjusted accordingly to keep up with the value of gold. That means that if there is a sudden spike in gold prices you could automatically get a much higher credit limit, but by the same token your spending limit could be curtailed if the price of gold plummets.

The gold that is deposited belongs to you, which means you have to buy it up front to set up the card. But if you later decide to close the account you are entitled to receive either a cash payment based on your gold’s price on that day or you can get paid in gold coins and will be given the same amount of gold you started off with in the account.

The gold card is a bit of a gimmick that is probably not ideal for every cardholder. But those who will benefit from it the most are people who own some gold bullion and also need a secured credit card because they have bad credit. They can put their gold to good use to get a card, start rebuilding their credit, and eventually qualify for a traditional non-secured card. Meantime their gold is in a safe place and will be returned to them if they decide to close the gold card account.

Prepaid credit cards – those that don’t have a line of credit or credit limit established by a card company but are instead based on how much cash the cardholder keeps on deposit in the card account – are gaining in popularity faster than any other kind of credit card. That’s mostly because they can be easily gotten even by people who get turned down for other more traditional types of credit cards. Even with bad credit, a bankruptcy, a foreclosure, or little or no income and assets it is still possible to succeed at getting your own prepaid credit card, and it works anywhere that major cards like Visa and Mastercard are accepted. But what many people do not realize is that the prepaid credit card is also one of the best tools you can use to help you manage your budget and personal expenses.

To use a prepaid card as a budget tool, first create your budget. Figure out how much money you have to spend, what your main expenses are each month, and how many dollars you have to spend in each category such as gasoline, rent, groceries, and so forth. Then get a prepaid card and deposit your monthly budget amount into that account. You then can use the card for those expenses, and you’ll be forced to manage the card in such a way that it does not run out before the end of the month.

You can even have more than one card – like one for groceries and another for car expenses. You can even get a prepaid card that lets you make payments online for things like your mortgage payment or rent, and once all of your big ticket budget items are designated and tied to a card, all you have to do in order to keep within your predetermined budget is to not totally max out the card until the month is over.

Parents are always looking for innovative ways to teach their kids about financial responsibility – especially these days when the average college student leaves college with 5-digit credit card debt and teen budgets can go haywire during just one short trip to the shopping mall. But with the advent of many new types of prepaid credit cards, parents are finding that using a prepaid card – which has a fixed credit limit – is a great way to help kids learn about credit card responsibility.

Think of a prepaid credit card as a financial bicycle with training wheels or a long leash to rein in spending. One of the biggest challenges when teaching a young person about finances – especially credit card debt – is to figure out how to balance financial freedom with budget limits. If you don’t give the child freedom to make their own money management decisions they will never learn how to be responsible with a budget, but if you give them too much slack they may get into financial trouble – and could even wreck your credit along the way.

Prepaid credit cards eliminate those factors because you cannot go over the limit on a prepaid card, and since it is backed up by cash in an account you cannot misuse the prepaid card in a way that will mess up your credit score. Meanwhile you can use it to build credit, so if a teen does a good job of using their prepaid credit card wisely they can earn the right to have their own real credit card – by earning a good credit rating that will start them out as an adult on a solid financial foundation. Good budget habits are rewarded in ways that the teens can clearly see and understand, but there is so much less risk than you can potentially incur by just letting a kid be one of the signers on your own Visa or Mastercard account. In that way the prepaid credit card is really like good training wheels because it is safe but helps the young person learn to navigate their own way in this credit-conscious world.

Prepaid credit cards – those cards that are backed by cash deposits in your bank account – are great tools for planning your vacation travel finances or working out a way to stick to a holiday budget. Many people save for vacations – sometimes saving all year long just to get that holiday they have been looking forward to – but they still have trouble managing their money once the vacation starts. But with a prepaid credit card you can apply for the card, set up the account that supports it and determines how much your credit limit is, and then start depositing all of those vacation savings into the prepaid credit card’s account. Once you have enough to take your cruise or trip to the beach or European excursion, just pack the prepaid card in your wallet and you are ready to go.

You can use the prepaid card to pay for all of your travel expenses like air fares, rail travel, rental cars, and gasoline. Then use it to pay for hotels and other expenses like dining and nightlife. By keeping an eye on your prepaid credit card balance you can have a quick snapshot of your holiday budget and finances, and you do not have to guess whether you are spending too much or not. If you are conservative with your money you may have extra to buy those incidental gifts and souvenirs. If the prepaid card balance starts to thin out, on the other hand, you can curtail your frivolous spending and just stick to paying for the basics.

That way you enjoy a full vacation experience without having to come home to financial stress because you maxed out a credit card. With prepaid cards you cannot max out because the way they work does not allow it, so you have a secure way to ensure that you stay inside your budget. If you get home and have credit left on the prepaid card, use that as a down payment on your next vacation and start building up your prepaid vacation credit card balance once more.

The market for prepaid credit cards is one of the fastest-growing segments of the multi-billion dollar credit card industry, and it is expected to continue to swell in 2010. Much of the reason for this surge is that prepaid credit cards are being marketed and advertised much more effectively – even being issued by famous pop stars whose logos appear on the cards as a kind of status symbol perk.

But the biggest fuel behind the prepaid credit card boom is, unfortunately, bad credit. Those who have bad credit due to a credit history that involves bankruptcy, mortgage default, or some other major problem cannot get traditional credit cards. During the recession millions of people found themselves suddenly in that unfortunate situation. And without a credit card it is not just inconvenient but sometimes hard to do simple things like rent a car. So people turn to prepaid cards as a way to get some plastic in their wallets until they have a chance to get their credit histories and finances back on track.

With a prepaid credit card you establish your own credit history, basically, and you decide for yourself what your credit card charge limit will be. In that way these cards can be very empowering – especially for those consumer who are sick and tired of being turned down for credit at banks and other financial institutions. The way the prepaid card works is that you deposit cash into an account, and that reserve of cash is used as your line of credit. You can charge on your card, make purchases with plastic, pay bills via credit card, or perform other typical credit card functions just as you would do with a conventional credit card, but only up to the amount that you have on deposit. Once the cash you prepaid into the account is used up, the credit card is also used up and will not function for you anymore.

So prepaid lets you control your finances because you determine when and how much to put on deposit to back up the plastic. Used wisely these card can be both convenient and helpful because you have the freedom of a credit card paired up with the responsibility that comes from managing money intelligently. Use a prepaid to shop, but also use it to improve your credit history so that you can eventually graduate to a full-service credit card.

If you are tired of carrying a purse or wallet you may be able to have a computer chip imbedded under your skin like James Bond to replace all that stuff in your pockets. Although it sounds like science fiction or high-tech fantasy, the technology for doing this kind of thing has been around for a decade or more – and is already used in some nightclubs around the world.

The body scans technology is mostly used in clubs as a way of offering a cool perk to VIP customers or members. The person’s information is put onto a tiny computer chip and then that chip is surgically placed just beneath the skin, usually on the arm. The computer then carries data such as your birthday – so you can prove you are old enough to get into a bar – along with your identification info and your credit card account basics. You get your arm scanned and the place you are entering gets enough information about you to let you into the club, even if it is private and restricted to people who can prove their identity, and also sufficient data to run a tab and let you buy drinks, food, or other items. A special scanning device at the entrance of the club does it all, so you can show up in a bikini with no pockets and nothing in the way of credit cards or an ID and still identify yourself and get on with enjoying the club.

The advantage to those who have gone to the trouble of having this kind of chip imbedded under their skin is basically two-fold. On the one hand they can now enjoy the relaxation and ease of going into their favorite club without having to remember to bring an ID or credit card. Or maybe they just like the idea of going to the pool, beach, spa, or other place where carrying things is a burden. Afterwards they just pop into the bar or club, get their armed scanned, and that’s that. Of course the other advantage is that having this kind of spy technology carries a huge cool factor with it, so those who are computer chip imbedded can impress others. Who knows, maybe someone will offer to buy you a drink and pay for it like a spy at one of these clubs in Copenhagen or Barcelona.

People often ask what exactly are debit cards and how have they managed to grow in popularity so much since the credit crisis began. Also commonly known as ATM cards – since they can be used in these automatic teller machines to gain access to bank checking or savings accounts – debit cards are a versatile and handy type of plastic and they share many characteristics with ordinary credit cards.

But while a credit card can be used to carry a balance as a revolving line of credit, a debit card can only be used to take money directly from a deposit account – like a savings or checking account – that has money in it already. In other words it can debit an existing source of cash, but cannot be used in place of cash as a means to borrow money you do not already have in the bank.

That feature limits the ways that debit cards can be used, of course, but it also puts limits on how much they can be misused or abused. You can only buy what you can already afford to pay for, in other words, whereas with a credit card you may get into trouble by spending money one month that you are unable to repay when the bill arrives the following month. For that reason debit cards have actually grown in popularity since the start of the recession and credit crisis, because people can use them to make purchases instead of carrying cash, but they cannot use them to take out loans or buy things with money they do not actually have in the bank.

When they were first created, most people used their bank debit cards only at ATM machines, like when the bank lobby was closed or they were traveling out of town. But because a debit card can also be used in place of a Visa card or other credit card, they have now become much more popular as a less risky alternative to the traditional credit card. They offer the convenience of plastic carried in the wallet, in other words, without the option to use them irresponsibly and wind up going way over your realistic budget.

And for those whose credit has been damaged by the credit crisis – and who now find it impossible to get a credit card application approved – the debit card is simpler to acquire. You do not have to have a great credit score to carry an ATM card and you don’t have to fill out complicated applications forms. All you really need to do is open a bank account, which is something that even people with bad credit are often able to do with no problem.

Rebates are basically partial refunds or discounts paid after you purchase something, and if you shop very much in large box stores for things like consumer electronics you have probably encountered various rebates or rebate offers. But rebate credit cards, while they are based on the same essential idea, work a little bit differently than the kinds of instant or mail-in rebates that companies often attach to their retail products. Whereas those product rebates kick back part of your purchase price – either at the cash register or after you mail in a rebate card and proof of purchase – a rebate credit card gives you a rebate every time you reach a certain level of spending and payments on your credit card.

If you have a Visa or MasterCard that is a rebate type card, for instance, you might be rewarded with a credit worth a percentage of your total credit card balance if you do enough buying and keep your credit card account current. These days one of the most popular kinds of rebate credit cards are the gas rebate cards. Gas prices are high, but if you get one of these cards and are a loyal customer who uses the card every time you fill the tank, you will gradually earn rebates on your purchases. This often includes non-fuel purchases made at the gas station for items like windshield washer fluid, oil, or even snacks and drinks.

Rebate programs are available for a wide variety of products and services – not just gas – so look for similar rebate credit cards or rewards cards at retail shops, grocery stores, online stores, travel related companies, sporting good stores, or other places where rebate programs are offered to credit card customers.

You accumulate a certain dollar amount in purchases and then the card company credits your account with a dollar amount according to the terms of the rebate agreement. If your rebate awards are equal to one percent of your purchases, for instance, and you spend $1,000 then you could earn up to $100 in free credits – which means you save that much money.

There are many different types of credit card rewards programs that will pay you back with money or other incentives in exchange for you using your card to pay for merchandise or services. Pick one that is appropriate to you based on what you buy the most often, and you can wind up saving a great deal of money – or getting lots of free perks or discounts – just by using your rewards card.

Let’s say, for instance, that you are a constant traveler who spends lots of money every year on airline tickets, rental cars, hotels, and out of town meals. Pair those spending habits with a good rewards card that tailors its incentives, rebates, or other credit card rewards to the business traveler and you may reap some really advantageous benefits.

Or if you are, for example, a truck driver or sales person who spends several hours each day driving from one customer or drop-off destination to another, you might be an ideal candidate for a gasoline credit card rewards program. These may pay you rebates or credits based on how much gas you buy or money you spend, or they may reward you for buying a particular brand of gasoline.

Some cards will even do innovative things such as entering you into a lottery type contest as their unique credit card rewards program. Get lucky and you might win a huge amount of money. There are cards that cater to people who support charities, too, and if you use those kinds of cards you might get rewarded not directly but through a program that automatically donates part of your credit card totals to your favorite non-profit organization.

The range of possibilities is huge, so if you want to earn cash back through a rewards card or get other types of credit card rewards as a bonus or incentive for being a loyal, active, and good credit card customer then shop around for a rewards card or cash back program that appeals to you and rewards your kind of spending patterns or shopping preferences.