Connect with us

Credit Cards

Investing During a Recession – Lexington Law

Published

on

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.

When things get lean, it’s natural to want to tighten your belt and save money wherever possible. But should you stop investing completely? It’s an entirely personal decision. Get some facts and insights about investing during a recession below to help you determine what will work for you.

Is It a Good Idea to Invest During a Recession?

It depends on a few factors, including what you’re referring to when you say “investing.” If you’re talking about funding a 401(k), you probably want to continue doing so unless you would be unable to pay your necessary bills and living expenses.

But if investing means the stock market or other similar options, you should seriously consider your financial situation. If you already have emergency savings and have disposable income to risk, investing can be an option. This is especially true if you won’t be touching your portfolio for a while, so you have time to weather the ups and downs associated with a recession economy.

But you do want to be aware of the bear market trap so you don’t fall into it. Bear traps occur when a lot of investors have bought into certain stock. This increases the selling pressure, which just means that there are buyers for the stock but not a lot of stock to be had.

Institutions that want the stock to move higher may push prices lower via short sales or other strategies, making it appear as if the prices are falling. That can scare people into selling the stock. In the long run, however, the stock maintains its price or increases in value, so selling early can mean losing out on future gains. This is just one reason you might want to work with a professional advisor when investing.

7 Tips for Investing During a Recession

1. Be Patient and Think Long-Term

Buying and selling stocks rapidly to turn huge profits is mostly an event seen in movies and television. And while it’s not impossible for pros to luck into a big win, this is not typically how individuals should look at investing. It may take time for your investments to pay off, especially if the economy as a whole is struggling, so it’s important to avoid being guided by emotions and rely on logic and sound financial advice.

2. Commit to a Personal Investment Plan

A personal investment plan is a written document that includes your financial goals and what types of limitations you might have, such as what you can afford to spend on investing. Creating such a document ensures you have a logical, well-thought-out guide to turn to when things do get tricky. If you feel tempted by a seemingly perfect investment, for example, your plan can remind you what you can realistically put into this new investment.

3. Use the Dollar-Cost Averaging Strategy

Dollar-cost averaging is a strategy used by many investors, including some professionals. Its goal is to potentially reduce the volatile nature of a single purchase. The DCA strategy works like this:

  • You decide how much you’re going to invest in certain assets within a set period
  • You divide that budget over that time and make periodic purchases of the asset
  • You do this despite the price of the asset at any given time

The goal is to build up the investment for a long-term gain strategy. This is actually how most 401(k) investments are managed.

4. Focus on Quality Over Quantity

But don’t think that you have to buy tons of assets to be investing for the future. If you have limited funds to invest with, it can be tempting to buy up stock that is cheap just to get some quantity. But cheap stock isn’t always a great investment, and it might be better to buy a smaller number of shares in a well-trusted company with a history of strong stock performance.

5. Consider Funds Instead of Individual Stocks

Another option is to consider funds, which spread your investment over numerous stocks. You’ve probably heard that you have to diversify your portfolio. That just means investing in numerous types of assets so that if one doesn’t perform well, you have other gains to make up for the loss.

A mutual fund is an investment option that’s already diversified, for example. Plus, it’s a convenient way to add numerous assets to your equity portfolio without buying and managing numerous stocks yourself.

6. Rebalance When Necessary

While investing is a long-term strategy, active investing can’t be a set-and-forget strategy. You have to make efforts to rebalance your portfolio—or ensure someone is doing that for you—from time to time.

Rebalancing just means aligning your assets with your target goals. For example, you might have a goal of 60% in stocks and 40% in other assets. But if your stocks gain rapidly during a few years, outpacing the gains of your other assets, you could have a 70/30 split. If your goal is still 60/40, you would rebalance by selling stock, purchasing other assets or both.

7. Invest in Recession-Resistant Industries

Recession-resistant industries are those that don’t tend to succumb to downturns in the economy, often because they’re necessary. Examples of industries that have historically weathered recessions well include healthcare, technology, beauty, retail, construction and pet products.

Note that because a company is in a recession-resistant industry doesn’t mean that company itself is necessarily resistant. It’s always important to be discerning about which stocks you invest in. For example, if the company doesn’t have strong financial leadership or has known money problems, it may not matter what industry it’s in.

Review Your Finances and Decide What’s Best for You

Ultimately, only you can decide whether investing during a recession is right for you. Start by reviewing your own finances. Some things you might want to look at include:

  • What kind of savings you have. Having emergency savings is important, especially in a recession. Before you start investing, you may want to build yours.
  • Your income and expenses. You need disposable income before you can invest. That means that your income should be more than your expenses.
  • Your credit history. Buying stocks and investing typically doesn’t rely on you having good credit. But before you start building wealth, get a good look at your credit reports to ensure there’s nothing lurking that you might need to attend to. If you find any surprises, consider reaching out to Lexington Law for help disputing inaccurate items and working to make a positive impact on your credit.

And if you do decide to invest—during a recession or otherwise—consider working with a financial advisor to help you navigate the complexities of managing your portfolio.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

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.

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Credit Cards

Subsidized vs. Unsubsidized Loans – Lexington Law

Published

on

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.

Source link

Continue Reading

Credit Cards

Chapter 7 vs. Chapter 13 Bankruptcy

Published

on

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.

Source link

Continue Reading

Credit Cards

15 Types of Credit Cards

Published

on

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.

Source link

Continue Reading

Trending