6 December 2021

The Different Types of Credit Cards, Explained

Credit

Did you know that in 2018 alone, more than 79 million credit cards were issued in Canada? There’s no exaggerating when it comes to the popularity of credit cards. It is important to know, however, that there is not just one kind of credit card that you should rely on.

In fact, there are many different types of credit cards that all have their own unique benefits. If you don’t know which credit cards might be good for you and which might not, make sure you don’t pick at random. Otherwise, your credit card might give you more headaches than benefits.

If you want to know how to find the best credit cards for you, you’ve clicked on the right article. If you keep reading, you’ll learn all about the different credit cards available. This ranges from credit cards with reward programs to travel rewards cards and more.

To start off our discussion of the best credit cards in Canada, we’ll start by understanding more about cash back credit cards and how they work.

Cash Back Credit Cards

A cash back credit card is a very simple type of credit card. It can benefit most people, regardless of their financial plans and goals. Cash back cards, however, are not all the same.

Different cash back cards can offer different types of paybacks. The “cash back” offered might be the real deal, while other cards might offer you statement credits instead. Others still may offer payback in the form of points that you can use for eating out or travel.

Sometimes the rewards offer will change every quarter. A big benefit of cash back credit cards is that most of them do not come with an annual fee. However, with the more prestigious cash back cards that offer better rewards, you may have to deal with an annual fee.

Cash back credit cards are great, especially if you do a lot of spending in certain categories such as food or clothing. Certain cash back cards will be able to give you bonuses for shopping within those categories. This, of course, is an ideal opportunity for saving money while shopping for what you love.

Flat-rate cash back cards, on the other hand, are preferred if you tend to shop for various items rather than those in particular categories. When signing up for cash back credit cards for the first time, you will often receive large bonuses, points, or rewards.

The main thing you need to consider when applying for a cash back card is making sure you meet the requirements for your desired card.

So, if cash back cards offer rewards, what’s the difference between them and reward credit cards?

Reward Credit Cards

Reward credit cards are very similar to cash back cards. In fact, some reward cards are cash back cards. However, there are a few important differences and variations.

A big difference between reward and cash back cards is that reward cards usually do not exist in flat-rate variations. Instead, reward cards offer points that are gained according to a percentage of your spending. Similar to cash back cards, reward cards can also offer special bonuses for certain categories, such as eating out and grocery shopping.

A big benefit of reward credit cards is that you don’t need to redeem your rewards solely in the form of points. You can choose to redeem your rewards in the form of gift cards and statement credits as well. If you do a lot of grocery shopping or eating out, what could be a better option for a credit card?

You get rewarded for buying things that you needed to buy anyway. Reward credit cards are a perfect choice for saving money on everyday spending.

If neither cash back or reward cards interest you, however, maybe you’re looking for something a little more adventurous.

Travel Rewards Cards

If you love traveling or have a job that requires a lot of traveling, then travel rewards credit cards might be for you. In contrast to the previous two credit cards, you can earn rewards with travel cards by traveling with airlines and staying at hotels.

However, some travel cards allow you to earn rewards through other spending options such as dining out. In general, you will earn more points through larger purchases such as airplane tickets.

If you travel excessively and want to go beyond standard credit cards, you might qualify for the higher-end travel rewards cards. These cards will allow you to experience all the luxuries of traveling and will open opportunities such as giving you access to exclusive airport lounges and priority boarding.

As you earn more points on your travel rewards cards, you can find yourself saving hundreds if not thousands of dollars on airplane tickets and stays at hotels. Often, when signing up for the first time with a travel card, you will receive a large number of points for traveling. Some cards even offer travel insurance.

Keep in mind that even when you’re not traveling, you can still earn points for your future travels. You can do this with non-travel-related purchases such as grocery shopping.

Business Credit Cards

At this point, if you’re still unsure how to choose a credit card, a business credit card might be for you. The big difference with business credit cards is that you can keep your personal spending separate from your business spending. Typically, you only earn rewards on your business spending.

It is important to keep in mind that business credit cards can sometimes be travel cards, reward cards, or cash back cards. Of course, since this is a business credit card, you will need to have your own business or a hobby that produces income in order to qualify for this card.

The benefit of a business credit card is that you can earn rewards while buying necessary items and equipment for your business. You can earn serious rewards by opting for high-end business credit cards rather than standard cards. Some luxury business credit cards can even help you track your expenses.

The form of the rewards for business credit cards can vary. Some offer flat-rate rewards. Others will offer you points while still others might reward you with airline miles or something similar.

But maybe you haven’t yet jumped into the world of business. In fact, maybe you’re trying to choose your first credit card as a student.

Student Credit Cards

If you don’t have a long and established credit history, you’ll find that it can be difficult to get any high-end credit card such as luxury travel cards or business credit cards. Many students find themselves in this situation since they have yet to find a job and have not yet formed a great credit history.

This doesn’t mean you’re out of luck when it comes to credit cards. In fact, you still have plenty of options to choose from. Beyond that, getting your first credit card as a student is a great stepping stone to building your credit and getting more prestigious credit cards in the future.

Student credit cards are also known as “starter” credit cards for obvious reasons. Because these credit cards are for people just starting out on their financial journeys, the requirements for these cards are minimal and they are often easy to obtain.

Another benefit of student credit cards is that they usually do not come with an annual fee. This is ideal for students who are trying to save money or pay off their student loans. The rewards for student credit cards accumulate with your everyday spending.

Some cards even offer bonuses for good grades. Not only are student credit cards great for building credit, but they can also teach students how to spend responsibly and save their money.

Premium Credit Cards

Premium credit cards are quite the opposite of student cards in that they have steep application requirements and usually come with a hearty annual fee. However, this does not mean premium cards should be avoided.

Premium cards often offer huge rewards based on your spending. These cards are ideal if you spend a lot on hotels or airplane tickets. No matter what you buy, you will find yourself saving a lot of money when using premium credit cards, especially over time.

Premium cards often come with other perks like travel insurance, access to airport lounges, and more. If you have the credit history and the money for a premium card, it’s worth it.