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Types of credit cards Credit cards come in four types and are available with a wide variety of interest rates and fees. Travel and entertainment cards (T&E) like American Express, Carte Blanche, and Diners Club charge an annual fee and must be paid in full at the end of each month and therefore don't charge interest. Department store cards are offered by most major retailers. They usually don't charge an annual fee but often charge high interest fees. Bank cards, such as Visa, Discover and MasterCard, may charge a yearly fee, and interest rates vary from state to state as well as across different financial institutions. It is important to remember that the individual banks and other financial institutions that issue the cards set the terms and interest rates for their card. Most department store and bank credit cards are revolving credit. You are allowed to charge purchases up to a certain limit and pay a minimum amount each month. The account stays open indefinitely as long as you make the minimum monthly payment on time. You are charged interest on your unpaid balance as well as interest on the previous month's interest. Most cards are unsecured, meaning that your promise of repayment is used as security. Secured credit cards (SCC) are major bank credit cards with a credit limit secured by a savings account. They look like and work the same as a regular bank card, but instead of using your promise to repay as security, you use your own money in the form of a deposit in a savings account. Secured credit cards are useful if you have had a history of bankruptcy, a poor payment history, or if you wish to establish a credit history. To apply for a card, you send a deposit as collateral, along with an application fee. Some issuers will accept deposits as low as $250. If you are not accepted, the deposit is returned. You can increase your credit limit by adding to your deposit. With a secured credit card (SCC), you pay your bill each month, just as you would with a regular charge card. If you do not pay your bill, the amount due is deducted from the deposit in your savings account, and your account may be closed. Interest (2 to 4 percent) is earned on your deposit, and you are developing a good credit rating at the same time. However, you may pay up to 22 percent interest on your unpaid balance. Some SCCs have a conversion feature that allows you to convert your card into a regular card once you have built a good payment record. Investigate and compare fees and interest rates of secured card offers before you send them any money. Some SCC cards (sometimes called gold cards) are actually a catalog shopping card that can only be used with the company's catalog. Send $4 for a list of SCC to:
A debit card is not a credit card. It is used like a credit card, but is not a credit card. The card is usually attached to your checking account, and allows you to access your account at an ATM or at a retail store when you make a purchase. The amount of purchase is immediately deducted from your checking account, and you are not able to pay for an item over a period of time. Credit cards are often necessary to:
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