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Does Closing a Bank Account Affect Credit?

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Let’s say you’re ready to close your bank account. Maybe you’re done with the high monthly charges, or the bank hasn’t treated you well or you’ve found a better bank. Whatever the reason is, you should stop and ask yourself, is it bad to close a bank account? After all, you don’t want to impact your credit score unknowingly.

The answer is yes, closing a bank account can indirectly impact your credit score. While banks don’t report consumer bank account information to the credit bureaus, they can report a checking account that is not in good standing.

That’s why it’s essential you learn what the potential consequences are and what you should consider before closing your bank account.

What Happens When You Close a Bank Account?

Before you consider closing your bank account, make sure you have a new one set up elsewhere. It’s essential you have at least one savings and one checking account.

Next, change your direct deposit payment details (if this is how you get paid) to your new bank account. At the same time, you’ll want to change the banking information for any pre-authorized debits, such as car insurance, rent or mortgage payments.

Make sure you stop writing checks for your old checking account. You’ll also want to track the checks you’ve written recently and make sure they’ve all cleared.

Give yourself a couple of weeks to monitor your old and new accounts. You’re looking to make sure your old account no longer has any activity and your new account is problem-free.

When you’re ready, you can call or visit your financial institution to close your account. Ask if there are any fees associated with closing the account and approximately how long it will take. If there’s any money left in the account, withdraw it or transfer it to your new account.

Check back in and make sure you cannot access the account after it’s been closed to verify the process is complete.

Closing a Checking Account

So, does closing a bank account hurt your credit? It’s important to understand that if you close a checking account with a negative balance still outstanding, this data will be reported to ChexSystems. (We’ll discuss ChexSystems in more detail below.)

Additionally, if the balance remains outstanding for an extended period of time, banks can send your account to a collection agency. And a collection agency will likely report to a credit bureau, which could impact your credit score.

Closing a Savings Account

Like a checking account, your savings account can incur various fees that cause it to have a negative balance. You could have insufficient fund fees, a wire-transfer fee, ATM fees or charges for not maintaining a minimum balance.

Ensure your savings account doesn’t have any outstanding fees before you close it. If there will be a fee for closing the account, pay it up front so it doesn’t come out of your closed savings account.

When Closing a Bank Account Affects Your Credit Score

The only time closing a bank account affects your credit score is if it has a negative balance. If you take too long to pay this balance to the bank, the financial institution can send the debt to a collection agency. A collection agency collects debts on behalf of third parties. And, in their debt collection process, a collection agency will usually report delinquencies to credit bureaus. This unpaid debt then becomes a part of your credit score, ultimately lowering it.

Overdraft Protection

Another critical factor to consider is how your checking account’s overdraft protection can impact your credit report.

Most banks encourage their users to sign up for overdraft protection because it’s like a “safety net” for forgotten bills or payments. When the bank applies overdraft protection to your account, it agrees to cover your overdraft based on the limits, conditions and fees spelled out in your agreement with them. This is especially useful for surprise charges.

However, what most consumers don’t know is that overdraft protection is considered a line of credit. So, when you add overdraft protection to your account, you may see a hard inquiry on your credit report. And a hard inquiry typically drops your credit score by a few points for a couple of months.

If there are any issues with your overdraft protection down the line, it can directly impact your score. Some of these issues might be:

  • The bank decided your overdraft protection has been abused and cuts off the line of credit
  • Your account has been closed with an outstanding balance and the bank sends the outstanding balance to a collection agency

The bank can choose to report these issues to the credit bureaus, where it will become part of your credit report.

ChexSystems

According to Bankrate, the banks and credit unions created ChexSystems to help identify problematic account holders who aren’t reliable in managing their bank accounts. ChexSystems identifies people who have frequently abused or closed checking accounts or who have multiple overdrawn balances.

As previously mentioned, banks don’t generally report your checking account information to credit bureaus. But they can report it to ChexSystems. The main reasons for reporting an account to ChexSystems are:

  • The individual closed an account with an outstanding overdraft balance
  • The individual has a history of multiple overdrafts
  • The individual abused his or her account or ATM access
  • The bank suspects the individual used his or her bank account(s) to participate in fraud
  • The individual opens and closes accounts too often
  • The individual frequently loses debit cards or checks

Once you’ve been reported to ChexSystems, it can become incredibly difficult to open another bank account. The major financial institutions rely on ChexSystems records before approving individuals for new accounts. Similar to the credit bureaus, ChexSystems has ratings for consumers that range from 100 to 899. A higher score indicates a less risky consumer.

If you’re reported to ChexSystems, expect to have that blemish on your history for up to five years. Having more than one report against your name in the system means you’ll likely be unable to do any regular banking and have to sign up for a second-chance account—less desirable accounts which have more requirements and offer fewer services than regular accounts

You can request a copy of your ChexSystems report once every 12 months or if you’ve been denied an account in the last 60 days. Request your report directly through ChexSystems and you should receive it within five business days.

How to Close a Bank Account Without Hurting Your Credit

You can close a bank account without hurting your credit score. Simply make sure you have all your bases covered by following these steps:

  1. Ensure you don’t have an outstanding negative balance on the account.
  2. Make sure you’ve identified if there will be any fees for closing the account, and pay them up front or leave enough money in the account to pay them off.
  3. Don’t close and open several accounts back to back.
  4. Check your closed account to ensure no hidden negative balance pops up.
  5. Consider the potential impact of overdraft protection on your credit score when you open a new account.

Now you have the answer to the question, “Is it bad to close a bank account?” And hopefully you understand the proper steps you need to take to close your account safely without negative consequences to your credit report.

Ultimately, you always want to make the right decisions to benefit your financial health and protect your credit score. After all, a good credit score opens many doors in life, such as approvals for car loans, mortgages, rental agreements and even job opportunities.

If your credit score is lower than it should be, you can work to improve your credit with our credit repair services. We can help you remove inaccurate or unfair negative items listed on your credit report, and you’ll also learn about healthy credit score habits along the way. Contact us today to find out more.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Subsidized vs. Unsubsidized Loans – Lexington Law

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

The federal direct loan program offers subsidized and unsubsidized loans to college students. A federal direct subsidized loan is a loan where the government pays the interest while the student is in school. A federal direct unsubsidized loan is one in which the student is responsible for paying all interest, receiving no additional federal aid.

What Is the Difference Between Subsidized and Unsubsidized Student Loans?

The main differences between federal direct subsidized and unsubsidized loans are the qualification criteria, the maximum limits and how the loan interest works.

A chart displaying the differences between subsidized and unsubsidized student loans.

Loan Qualifications

Subsidized: To qualify for a subsidized loan, you must be an undergraduate student who can demonstrate financial need based on the information you submit through the Free Application for Federal Student Aid (“FAFSA”).

Unsubsidized: Unsubsidized loans are available to both undergraduate and graduate students, and there is no requirement to demonstrate financial need.

Maximum Loan Limits

Subsidized: Your school will determine exactly how much you can borrow each year, but there are federal limits. These limits are based on what year of school you are in and whether you file as a dependent or an independent. Subsidized loan limits tend to be lower than unsubsidized limits. The aggregate limit for an independent student with subsidized loans is $23,000.

Unsubsidized: Unsubsidized loan limits tend to be higher than subsidized loan limits. The aggregate limit for an independent student with unsubsidized loans is $34,500.

How Interest Accrues

Subsidized: The U.S. Department of Education pays the interest for subsidized loans as long as the student is enrolled in school at least half-time. They will also pay the interest during your grace period—defined as the first six months after leaving school—and any period of deferment. This means that the amount of the loan will not grow once the student graduates, since the government has been paying the interest.

Unsubsidized: Whether you’re an undergraduate or a graduate student, you’re responsible for paying all of the interest during the entire life of your unsubsidized loan.

What Are the Similarities Between Subsidized and Unsubsidized Student Loans?

When it comes to interest rates, fees and the “maximum eligibility period”—the amount of time you’re able to take out loans—subsidized and unsubsidized loans are virtually the same.

Fees

On top of interest, you can expect to pay a small fee for both types of loans. This is approximately 1.06 percent of your total loan amount, and it is deducted from each loan disbursement. 

Both subsidized and unsubsidized student loans have a fee of 1.06% of the total loan amount.

Undergraduate Interest Rates

The interest rates for both subsidized and unsubsidized loans for undergraduate students are the same. Currently, the rate is at 2.75 percent for loans first disbursed from July 1st, 2020, to June 31st, 2021. The one exception is for direct unsubsidized loans for graduate students, which have an interest rate of 4.30 percent. 

Maximum Eligibility Period

For both loan types, the time in which you’re eligible for your loans is equal to 150 percent of the time of your program. For undergraduates pursuing a four-year bachelor’s degree, this means they will be eligible for their loans for six years. Those pursuing a two-year associate’s degree will be eligible for three years. This ensures that students can still receive loans even if they’re unable or choose not to graduate within the program’s time frame. 

How to Apply for Subsidized and Unsubsidized Loans

Once you’re ready to apply for a federal direct loan, fill out the FAFSA. Your school will send you a detailed report of what student aid you’re eligible for. Any grants or scholarships are free money, so make sure to accept them. They’ll also decide which loans you’re eligible for, the amount you can borrow each year and what loan type you can get—subsidized or unsubsidized. 

No matter what type of student loan you go for, it’s important to understand how they affect your credit so that you can set yourself up for financial success after graduation. With responsible, on-time payments, you’ll be well on your way to healthy credit for life.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Chapter 7 vs. Chapter 13 Bankruptcy

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Bankruptcy is a legal process that lets you restructure your debts or have them discharged. The details of how your bankruptcy plays out depend on your overall financial situation and what type of bankruptcy you file, but the goal of bankruptcy is to help debtors who can’t pay all their debts create a path toward a better financial future while paying as much as they can. To determine how much you pay, consider Chapter 7 vs. Chapter 13 bankruptcy.

It’s important to note that bankruptcy should be a last resort. It has serious consequences for your credit and immediate financial future, which means you may want to consider all other options first. Find out more about Chapter 7 vs. Chapter 13 bankruptcy below and then talk to a lawyer about what might be best for you—many bankruptcy attorneys offer free consultations for this purpose.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is sometimes referred to as liquidation bankruptcy or the fresh start bankruptcy.  While every situation is handled according to the details of the case, the basic concept of Chapter 7 is that your non-exempt assets are liquidated to repay creditors and any remaining debt not covered is discharged in the bankruptcy.  It should be noted that many families have no non-exempt assets, or very few non-exempt assets.

How It Works

First, you go through a pre-filing credit counseling course and obtain a certificate that you file when you file a petition with the court for Chapter 7 bankruptcy.  Before filing chapter 7 you must perform the “means test” to determine whether you qualify for chapter 7 at all. 

The means test considers your income for the preceding six months, your family size, and some other factors.  If you qualify for chapter 7 you can prepare and file your chapter 7 papers yourself, but most experts recommend working with a bankruptcy lawyer, as the process is complex.

You must also submit records including lists of all your assets and debts, your current income and expenses, tax returns and other documents related to your financial status, including contracts like leases that might be in play.

You’ll also be required to go through credit counseling after your bankruptcy is filed, and submit a certificate that you did so—if you work with a bankruptcy attorney, they usually help facilitate this.

Most creditor activities against you, such as lawsuits, foreclosures and wage garnishments, must be halted as soon as you file the petition and the creditor finds out about it. This is known as the automatic stay.

Within a few weeks, the bankruptcy trustee holds what is called a meeting of creditors. This is a hearing you must attend. You are placed under oath and the trustee, along with any present creditors, asks you questions. The trustee uses this information to determine whether you have any non-exempt assets or transactions that can be reversed. 

The trustee is looking to see if s/he can obtain any money for your creditors. The trustee is also looking to insure that debtors are truthful and fully disclosing of their situation. 

Once the case proceeds past this point, your debts are discharged as agreed upon after liquidation of non-exempt assets (if any) occurs and funds are disbursed to various creditors by the trustee. Some of your assets are protected by exclusions, including certain personal items and clothing.

You may also be able to keep a vehicle for the purpose of travel to and from work as well as your home, depending on how much equity you have in it.

Eligibility Rules

Eligibility for Chapter 7 bankruptcy depends on income and the application of a means test.

You may be eligible for a Chapter 7 filing if you pass the rigorous requirements of the means test, a test which looks at your income for the last six months, your family size, and other items, and compares you to other persons of the same family size in your area to determine whether you qualify.

Unsecured debt refers to debt that isn’t secured by property. Vehicle and home loans are secured by property, meaning the bank can take that property if you don’t pay to mitigate some of their losses. Credit cards are not usually secured, but may be in some instances. Priority unsecured debt refers to amounts you owe on taxes or child support.

Nonpriority unsecured debts are items such as credit card debt, personal loans and medical debt.

This is a lot of information, and it does sometimes get complex. But the bottom line is that if you have too much income, you may not be able to file Chapter 7. That’s because the court assumes you have enough income to pay at least some of your creditors.

Pros

If you qualify for Chapter 7, it can help you start fresh with debt. In some circumstances, you may leave the bankruptcy with no debt at all. It’s also faster than other forms of bankruptcy because there’s no repayment plan period.

Cons

Chapter 7 is looked at by future creditors as worse than Chapter 13 because it shows no effort to make any payment on debt owned. The Chapter 7 negative listing on your credit report will also show up for 10 years after you file the petition.

What Is Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a restructuring plan. You work through the bankruptcy trustee to pay some, but usually not all, of your debts over three to five years. If you meet all the requirements of the plan, your remaining debt may be discharged at the end of the bankruptcy.

How It Works

Many of the processes associated with filing a Chapter 13 bankruptcy are the same as when you file a Chapter 7 bankruptcy. You take the pre-filing credit counseling course, file the petition, an automatic stay goes into place, you attend the meeting of creditors and then you work with the trustee via your attorney to make the appropriate payments every month.

You pay the trustee as dictated by your bankruptcy plan.  Once the plan is approved by the court, the trustee then disburses that money to your creditors. If you miss your Chapter 13 bankruptcy payments, the trustee can file a motion to dismiss your case, and you would then owe all the debts and creditors could begin collections actions against you again.

Once you complete the Chapter 13 bankruptcy repayment plan, you are typically entitled to a discharge of all remaining debts under the bankruptcy.

Eligibility Rules

Eligibility for Chapter 13 bankruptcy depends on the amount of your debts as well as your ability to make payments as planned in your repayment plan.

  • Unsecured debts must be less than $ 419,275. (As on October, 2020 –this number increases periodically with inflation.)
  • Secured debts, including any mortgages, must be less than $1,257.850. (As of October, 2020 –this number increases periodically with inflation.)
  • For your repayment plan to be confirmed, the trustee has to deem it possible for you to make the payments. If, for example, you agree to make a payment that totals your monthly income and leaves no room for living expenses, the trustee is likely to reject the plan.

Pros

Chapter 13 bankruptcy stays on your credit for less time than a Chapter 7—up to seven years from the filing date. Future creditors might also look more favorably upon it because it shows that you made some effort to repay debts. In a Chapter 13, you are typically able to keep all your belongings and don’t have to liquidate them.

Cons

You do have to make some payments toward debts, which can mean a hefty monthly payment to the trustee. You also agree to submit certain financial decisions, such as whether you take on new debt, to the court during the repayment plan.

Which Kind of Bankruptcy Is Best for Me?

Chapter 7 may be a good choice if your income is low or if you are struggling to make any payment on debts. Chapter 13 may be the right choice if you do have some ability to pay but you’re simply overwhelmed with your current debt load.

The decision can be complex, so it’s important to consult a bankruptcy attorney to find out what your options are and what might be right for you.

How Do I Apply for Bankruptcy?

You apply for a bankruptcy by filing a bankruptcy petition. You can file on your own or through an attorney.

How Does Bankruptcy Affect My Credit?

Depending on how you file, bankruptcy stays on your credit report for up to seven to 10 years. Bankruptcy appears on your credit report as a negative public record item, and it can bring your score down substantially. How much your score drops depends on what it was before you entered bankruptcy and other factors, but it’s typically enough to drop you down to a different range—such as moving you from good to fair or poor credit.

Typically, by the time someone makes the decision to file for bankruptcy, their credit score is already suffering because of late payments or delinquent accounts in collections. A bankruptcy is a big hit, but it’s not a death knell for your good credit. In fact, if you’re responsible with debt following your bankruptcy, you can work toward a better credit future.

It’s a good idea to keep an eye on your credit as you move through the bankruptcy process. Address inaccurate information as soon as possible to keep your score from dropping any lower. Find out more about Lexington Law credit repair services and how they might help you continue to positively impact your credit as you move past your bankruptcy.


Reviewed by Vince R. Mayr, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Vince has considerable expertise in the field of bankruptcy law. He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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15 Types of Credit Cards

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Whether you’re a seasoned cardholder or a first-timer, you may be surprised at how many types of credit cards are available. Depending on your credit score and the length of your credit history, you may not be able to qualify for the ones with the most favorable terms and lowest interest rates. But chances are, there’s a card that fits your needs and—if used responsibly—may help you build credit.

Broadly speaking, there are four different types of credit card categories:

  1. Cards That Help Build Credit
  2. Cards That Can Save You Money
  3. Cards That Offer Cash Back and Rewards
  4. Cards for People With Bad Credit

Here, we’ll break down each category, discuss the specific card types and explain each one’s unique benefits so that you can make the most of your card.

Cards That Help Build Credit

If you’re new to the world of credit, you may be wondering how to build credit quickly, without going into debt. If you’re in college, you may have the added load of student debt. When you’re just starting out, it’s important to find a card that’s right for you and manage it carefully to start your credit health out on the right foot. You may even be able to earn some rewards along the way.

Cardholders ages 18 – 22 have an average credit score of 672.

1. Student Credit Cards

Student credit cards operate exactly the same way that standard credit cards do. The main difference is that their total credit limits tend to be lower. Additionally, since they are marketed toward students who likely don’t have much of a credit history, the requirements for approval are typically more lenient. 

Benefit: Some student cards offer incentives for good grades, like a small cash reward for each school year that you earn a GPA of 3.0 or higher.

Example: Discover it® Student Cash Back

2. Starter Credit Cards

Starter credit cards are designed for those with little to no credit history. Consider getting one if you’ve never had a line of credit, or if you have one that hasn’t been open very long. These cards typically don’t offer great rewards programs or cash-back incentives, and they come with high interest rates. However, if you can find one with no annual fee, it can be a great option to begin building credit.

Benefit: Establish your credit and build a solid payment history with this type of credit card, which is generally easy to qualify for.

Example: Capital One Platinum® Credit Card

3. Joint Credit Cards

Unlike authorized user credit cards, joint credit cards require both parties to apply together. Both parties are equally responsible for paying the balance. Therefore, late or missed payments may ding both credit scores—while consistent, on-time payments will benefit both scores. 

Benefit: If a person doesn’t have a high enough credit score to qualify for a good credit card, they may consider applying with their partner for a joint credit card with more favorable terms.

Example: Bank of America® Cash Rewards Credit Card

Cards That Can Save You Money

Sometimes applying for a credit card is a strategic move. Maybe you want to transfer your balance to a card with a lower interest rate, avoid paying interest for an introductory period or customize features for your business. These cards can help you save money—your way.

Approximately 74% of credit cards have no annual fee.

4. Zero Percent Purchase APR Credit Cards

Sometimes cards will offer temporarily lower APRs for an introductory period. Cards that boast zero percent APR don’t require you to pay interest on new purchases for a set amount of time, usually about 12 months. 

Benefit: Save money on interest by borrowing money essentially for free. Just make sure to pay off your balance by the time your introductory period is over to avoid interest charges.

Example: U.S. Bank Visa® Platinum Card

5. No Annual Fee Credit Cards

Many credit cards charge annual fees for the convenience of having the card and for the benefits and rewards they offer. Depending on how elite the card is, these fees can be up to $450 or more. However, almost three-fourths of cards offer no annual fee—and many of these still come with decent cash back programs. Scan your credit card offer or the terms and conditions to make sure your card has no annual fee. 

Benefit: Save an average of $58 each year by avoiding unnecessary annual credit card fees.

Example: Citi® Double Cash Card

6. Balance Transfer Credit Cards

Similar to zero percent purchase APR credit cards, balance transfer cards offer temporarily low introductory rates—but specifically for balance transfers. This is a great option for those who want to save money on a high-interest credit card. Rather than closing the unfavorable card—which may lower your credit score—a balance transfer may be a better option.

Benefit: Avoid paying hefty amounts of interest by transferring your balance to a card with a much lower introductory rate. 

Example: Wells Fargo Platinum Card

7. Business Credit Cards

If you’re a business owner, you may want to apply for a credit card specifically for business use. This will help you separate personal and business expenses, and the rewards may help your business save money. You’ll then begin to build business credit. To apply you’ll need decent credit and either a federal tax ID or employer identification number (EIN).

Benefit: Enjoy business-specific perks like higher credit limits, expense management reports and the ability to add more cards for employees. 

Example: Costco Anywhere Visa® Business Card by Citi

Cards That Offer Cash Back and Rewards

In order to get the most out of their spending, most cardholders gravitate toward credit options that offer cash back and rewards. 

Cardholders carry an average of 4.1 cards, 2.4 of which are rewards-based.

8. Cash Back Credit Cards

Cash back credit cards allow you to earn a certain percent—typically ranging from one to five—of the money back every time you make a purchase with the card. Some issuers will pay this amount annually, while others pay monthly.

Benefit: Find a card that allows you to customize where you get your cash back. For example, certain cards allow you to earn five percent cash back in a store category of your choice.

Example: Chase Freedom Unlimited®

9. Retail Credit Cards

Retail or store credit cards are offered by specific businesses and can only be used to make purchases with that store. While these cards aren’t ideal for everyday purchasing needs, they’re a great way to earn generous rewards with stores that you frequently shop at. There are over 300 store credit cards available, from Walmart and Target to Lowe’s and JCPenney. 

Benefit: Store cards typically don’t charge annual fees, don’t require excellent credit and offer substantial first-purchase discounts as well as long-term cash back rewards.

Example: Amazon Prime Store Card

10. Hotel Credit Cards

Hotel credit cards are affiliated with a specific hotel chain and offer rewards on a “points” basis. Typically, they’ll offer some points for purchases made at unrelated businesses such as grocery stores, gas stations and restaurants. But the main attraction is the bonus points earned on eligible purchases made directly with the hotel. 

Benefit: Earn generous sign-up bonuses, rewards when you spend money on hotel bookings and yearly free nights. 

Example: Hilton Honors American Express Surpass® Card

11. Airline Credit Cards

Certain credit cards offer rewards on purchases made with a specific airline, while others allow you to earn rewards with any airline or travel-related expense. These rewards rack up in the form of “miles.” For example, many cards offer two miles for every one dollar spent on flights. 

Benefit: For frequent travelers, airline credit cards are a great way to score free and discounted flights.

Example: Delta SkyMiles® Gold American Express Card

12. Gas Rewards Credit Cards

Not to be confused with gas station credit cards—which operate like retail cards—a gas station rewards card offers cash back when you pay at the pump. It can be used anywhere, but you’ll enjoy bonus rewards at gas stations.

Benefit: Earn up to three to five percent cash back on gas purchases, often with no annual fee and a zero percent introductory APR. 

Example: PenFed Platinum Rewards Visa Signature® Card

13. Charge Cards

Charge cards operate in exactly the same manner as regular credit cards, except for one major caveat: you must completely pay off the total balance each month. Failure to do so results in late fees and penalties and will cause a drop in your credit score. On the flip side, they typically come with sizable initial bonuses and rewards.

Benefit: Enjoy higher credit limits and generous point systems—oftentimes offering up to five points per one dollar spent.

Example: ThePlatinum Card® from American Express

Cards for People With Bad Credit

If you’re struggling to get approved for credit cards, loans or other lines of credit because of bad credit, don’t be discouraged. There are credit cards with terms designed specifically for those with poor credit. 

Approximately 12% of Americans have a FICO score below 550.

14. Secured Credit Cards

Most credit cards are unsecured. This means that you are not required to put up a security deposit. Secured cards, on the other hand, require an up-front payment to act as collateral in the event that you can’t pay your balance. Credit card issuers see borrowers with bad credit scores as riskier, so this deposit helps mitigate some of that risk

Benefit: Secured cards give borrowers with poor credit access to credit when they otherwise wouldn’t be able to qualify for a card.

Example: Capital One® Secured Mastercard®

15. Prepaid Cards

Prepaid cards aren’t technically credit cards, because they don’t involve borrowing money. Instead, a cardholder loads a set amount of money onto the card, and purchases are subtracted from the card’s balance, similar to a gift card. The spending limit then renews if and when the card is reloaded. 

Benefit: Prepaid cards help you stay within a budget and avoid getting into credit card debt.

Example: American Express Serve® FREE Reloads

What Type of Credit Card Is Best?

Ultimately, the decision for which card to get is up to your personal preferences and financial goals. However, there are a few good rules of thumb when looking for the best credit cards. Remember to read the terms and conditions carefully before signing up. Generally, cards with any of the following perks may be worth pursuing:

  • Zero percent introductory APR
  • Low APR after the introductory period
  • Sign-up bonus
  • Solid rewards or cash-back program
  • No annual fee

All of the different types of credit cards may seem daunting at first, but once you understand the unique benefits of each one, you’ll be able to find a card that fits your needs. Remember that—regardless of credit card type—good credit management is the key to keeping your credit healthy. After years of on-time payments, low credit utilization, a good mix of credit and few hard inquiries, you’ll be well on your way to your best score yet.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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