Types of Credit Cards

A credit card is a small plastic card that is used for retail transaction settlement and credit system, in which the credit card user owes the amount during every transaction to the issuer. Interest is charged and the credit card users can “revolve” their balance. When users make a purchase, they have to indicate their consent to pay the issuer by putting their signature on a receipt that records details of the card and the amount to be paid. Verbal authorizations via telephone and online electronic authorization may also be used by certain merchants. An electronic verification system is used to verify the validity of the card, and if the user has sufficient credit to cover the purchase. There are also a couple of variations of verification systems.

Secured Credit Cards

A secured credit card is a credit card that requires a cash collateral deposit, which becomes the credit line for the deposit account owned by the cardholder. A deposit of 100% to 200% of the total amount of credit is usually required for secured cards. For example, if you put $900 in the account; you can be given credit up to $900. So, your credit limit will either be the amount of your deposit or some percentage above that amount. You will also be able to acquire more credit if you add to the deposit.

Unsecured Credit Cards

The bank will not require you to deposit an amount as security or collateral. However, you will be issued a credit card with a low spending limit that may range from a few hundred dollars to one or two thousand dollars, and very high fees. Your spending limit will also be increased if you continue to prove your ability, and good intentions of making payments in time.

Prepaid Credit Cards

A prepaid credit card is a credit card that functions basically like a regular credit card, but the only difference is that they are completely controlled by the user, because instead of borrowing against a credit balance, the funds on credit card is prepaid by the holder who can use them according to needs. The credit limit for prepaid credit cards is the deposit made by you when you opened the credit card account, which also allows you to add more money in the account when funds are depleted.

Cash Back Credit Cards

Companies usually pay a percentage of the transaction amount when they receive credit card payments, in commission to their bank or merchant services provider, which they share with the cardholder by giving benefits such as points, air miles, or a monetary amount. The monetary amount is known as cash back, and cash back credit card holders receive between 0.5% and 2% of their net expenditure as an annual rebate. This can be credited to the credit account, or paid to the cardholder by cheque or other means.

Instant Approval Credit Cards

"Instant approval" credit cards refer to a system in which credit card applications are, as the name suggests, instantly approved or rejected by credit card companies based on the information when you apply for a credit card on their website and on the data received from your online credit report. With instant approval credit card offers, customers typically receive notice of acceptance or approval within minutes of filling out the online application form.

Low Interest Credit Cards

Credit card companies often a low "introductory" interest rate that carries a variable low interest rate on a credit card. Within a short period of time, the interest rate for such type of low interest rate credit cards will increase and reach a higher fixed interest rate. So even if the introductory interest rate can be very attractive, it may cost you more in the long run. Another option, fixed low interest rate credit cards are ideal if you intend to keep a credit card for an extended period of time. With such type of credit cards, the interest rate is not variable and will not fluctuate.