Types of Credit Cards

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.

Just as the old saying goes, there is no free lunch in this world. But there are freebies attached to credit cards – including perks like no annual fee or yearly membership. These so-called free credit card deals may not be completely free of charges – such as interest you still have to pay on any balances you carry forward from month to month – but when it comes to owning a credit card one with no annual fee is as close to a free credit card as it gets. Pair that free yearly membership with a competitive interest rate – or a low or zero introductory rate deal – and you have a formula for a really attractive credit card.

Keep in mind that some cards that do charge an annual fee may have other benefits that can help to justify the cost of your yearly membership. Many rewards card, for example, like those that are connected to an airline frequent flier program may carry an annual fee. But if your rewards outweigh the cost of enrollment, then it may be worth it to you. Otherwise you will want to search out cards that are really and truly free credit cards with no annual fee – because unless you are getting some special perks there is no reason why you should have to pay for the privilege of carrying plastic around in your wallet.

Study the small print whenever you get a free credit card offer to determine whether it is a permanent offer or one that has an expiration date. Many cards will start you off for free, for instance, but maybe after the first year you will start to be charged an annual fee. Others will charge a one-time enrollment fee when you first get the card, a practice that is common with cards offered to people who have poor credit.

But if you have decent credit and plan to hold on to your card and rely on it for years to come, you might be better to keep shopping around. There are literally hundreds – if not thousands – of great credit cards that never charge any enrollment fee or yearly membership at all while the still offer great rates and benefits.

Teaching your son or daughter how to manage money is an increasingly important aspect of good parenting, and if you choose the right kind of credit card you can get some help from your card company. That’s because many credit card issuers offer special products in the form of credit cards that have built-in parental controls.
 
You get the peace of mind and confidence of knowing that you child will not be able to misuse or abuse the card – which could destroy your own credit rating and create havoc. You also get help teaching your kids how to use a credit card in the grown-up world of modern finance and commerce. They can learn safely and securely, because even if they accidentally slip up and make an innocent mistake – like going over their spending limit – the automatic card controls will kick in and save the day.

These cards put the son or daughter on your own credit card account as another card user or cardholder, which makes it easy for them to get a card even if they are still too young to have a credit history or good credit score. But since you are being exposed to liability by having them on your account, the credit card features also offer various types of protection. You can set the limit for how much the kid is able to withdraw at one time, for example, from an ATM machine. If they go to the ATM and your imposed limit is $25 per day and they try to withdraw more than that, the transaction will be blocked.
 
But you can also sign up for e-mail alerts, which are super-cool. Let’s say your child has a spending limit of $100 but they try to get access to $150. You will get an email within 24 hours telling you all about it. If they try to use the credit card in designated places that are inappropriate, you can also get notifications about that kind of behavior. Your son who is 17 tries to use the card to rent a car, a hotel room, or pay to get into a place where only adults are allowed and not only is his card usage stopped but you get notified. Your daughter tries to use the credit card in a restaurant to buy alcohol – even though she is under age – and you find out with a convenient e-mail. The features vary from card to card, and you can choose among those that offered to set your own menu of preferences.

So instead of being afraid to let your child have a credit card, take advantage of these great features to train your child to be a more responsible and savvy consumer. It is a lesson that will reward them for the rest of their lives.

Many people run a business and use checks to pay most of their business expenses. When they need to use a credit card instead of writing a business check – like when they rent a car or place an order for supplies over the Internet – they just pull out their own personal credit card and use it, reimbursing themselves later from the business bank account. But when it comes to paying business taxes – which can be expensive and complicated to keep track of for IRS or state filing purposes – a business credit card offers one significant perk that is so handy it may convince you to get one and start using it.

When you use a credit card for business and then pay interest on the credit card balance, that interest is usually tax deductible. That is not true with normal interest you pay on personal credit cards, and with interest payments as high as 20 percent or more on many credit cards, the tax deduction perks are really substantial. The reason it is important to get an exclusive designated business credit card is that you will have a completely separate billing statement and account – distinct from those tied to your personal credit card usage.

The IRS and your state tax office have stringent rules that prevent you from tacking on personal expenses to your tally of qualified business expenses. But if you use just one card for business, those deductable interest payments will be automatically separated for you each month. Most credit card companies will also send you a year-end summary of your year’s expenses – neatly tabulated into various expense categories like “travel,” “office supplies,” “meals,” “gasoline,” and so forth. That saves you lots of time and frustration at tax time, and it gives you a tidy document to use to prove that the tax deductions you claim are really and truly legitimate.

But the main perk is that you can deduct your interest payments. If you use your credit card like many businesses do – as a way to give yourself hassle-free loans and cash advances – then the amount of interest you pay to service that credit card debt could be huge. Getting to write it off as the cost of doing business at tax time turns it from a negative into a big positive, though, and if you are missing out on that tax deduction you should seriously consider taking advantage of it with a business credit card.

Even if you were turned down for a credit card or have such bad credit that nobody will lend to you, it is still possible for you to get a valid credit card. That’s right, even if everyone has rejected your credit card applications the chances are extremely high that you can walk into your local bank and walk out with a brand new MasterCard or VISA Card that will work credit cards are accepted. Use it for groceries, to buy gas, to shop at the mall, to purchase souvenirs while on vacation, or to rent movies or pay for a fancy meal in your favorite gourmet restaurant.

The kind of card you want is a “collateralized” credit card, because it has collateral or actual cash to back it up in the event you fail to repay your balance. Ordinary credit cards, on the other hand, are not backed by anything but good faith – which is why lenders and credit card issuers will not grant you one unless they think you have a strong record of repaying your obligations. But if you get a collateralized credit card it will be tied to your checking or savings account in much the same way that an ATM card is connected to that kind of bank account.

Your bank will put a limit on how much you can spend based on how many dollars are held in your matching bank account. Put $500 in the credit card bank account, for example, and your bank will typically issue you a credit card with a $500 spending limit. As you spend money during the month, the limit shrinks – just as it does on a conventional credit card – and when you repay the card by paying off your outstanding balance then the limit goes back up. The major difference is that with money in the account to back up the credit card you are able to get a VISA or MasterCard when you would otherwise be totally refused and rejected.

The best feature of these unique credit cards, however, is that they give you a way to build up your credit rating. Once you get one and start using it responsibly, make sure your bank reports the account activity to the major credit rating services on a regular basis. Before long you will have good enough credit that you will be able to apply and get your own traditional style non-collateral credit card, even if you were rejected in the past.

Anyone who has ever accumulated enough frequent flier miles or free miles on an airline miles credit card understands the thrill of being able to take off and fly free of charge. But once you cash in your miles and take that trip, your balance falls back to zero again and the long process of building your mileage account back up starts over. That can be a real disappointment because for many of us – especially those who do not travel very often – it can take forever to earn enough miles to pay for a free trip.

But there is a quicker way, and an easier solution, for anyone who happens to own or manage a business. Enroll in a good airline reward program, apply for and get an airline miles card that has affordable terms and user-friendly features, and then try to charge every possible business expense you can by running the expenses through your credit card. If you work in an office that orders copier paper once a month, for instance, pay for it with your air miles credit card. Then use a business check to reimburse yourself so that you have the cash to pay off the credit card expense when the monthly statement arrives. The same strategy works in any business or profession – whether you work as an auto mechanic, own a restaurant, repair computers, or work in a doctor’s office.

Any time supplies, products, or additional inventory is ordered just get in the habit of paying for it with your air miles card instead of using a business check to pay the vendor or supplier directly. Reimburse with a business check so that the credit card can be paid off and also so that the business can document its expenses for tax deduction purposes – which are also extremely valuable. But because businesses normally incur many more dollars in expenses each month compared to what you might spend by yourself with your credit card, you’ll rack up free travel miles at an astonishing rate.

One particular landscaper who uses this strategy, for example, only makes about $30,000 a year. But because he buys lots of plants, mulch, and other items for his customers all year long as part of his landscaping business, his business spends $10,000 a month. Because he runs those expenses through his air miles card he earns about $100,000 worth of air miles each year, and that allows him to take free annual vacations to exotic destinations – even on a modest income.