In the second part of a two-part series on credit cards, we go over some of the other more popular types of credit cards, along with their advantages and disadvatanges.
This series is a guest post from a colleague of mine Fred. Fred is a
personal finance writer for CreditCardFinder. He helps people compare rewards credit cards and business credit cards online.
Before you can choose the credit card which is right for you, you need to choose the type of credit card you need. There are different credit cards available for different spending habits, purchase volumes and financial needs, so before you apply for a new credit card, find out what it means to choose one with no annual fee, or a gold or platinum credit card.
No Annual Fee Credit Card
There are credit cards without annual fees – then why don’t all credit cards offer a $0 annual fee!? We hear your question, but the answer is not as straightforward because while not paying an annual fee means one less charge on your card, you are often trading that advantage for a disadvantage. As with any financial product, you need to find the card with the right balance of features and fees so you can manage the charges with the benefits you get.
Advantages of a no annual fee credit card:
- One less purchase to pay off. A credit card annual fee is charged to the card account just like any other purchase. Therefore it is added to your balance and you have to pay it off with your monthly payment. However, if there is no fee, that’s one less payment you have to worry about.
- Encourages you to operate your credit card for free. A no annual fee credit card will also usually have a long interest free period, making it perfect if you manage to repay your balance within those interest free days, because you don’t get charged and annual fee either and you can use your credit card for free all year round.
Disadvantages of a no annual fee card:
- Can be subject to conditions which encourage you to spend. Some credit cards will offer a $0 annual fee if you make a certain amount of purchases in a year. This can easily encourage you to buy things you don’t need, just to meet a minimum purchase amount, getting you into credit card debt you can’t afford.
- Can be an introductory offer for the first year. This means you can become used to not paying an annual fee, and get used to the features of the card, only to find in the second year you have it that you can’t afford it.
- The condition could be fewer rewards. Annual fee conditions or introductory offers can determine whether or not a $0 annual fee card really is fee free. However, on a no annual fee credit card without such conditions, the only condition may be that there will be fewer rewards offered.
Gold Credit Cards
A gold credit card can lend a certain prestige to your wallet and if you enjoy the exclusive feeling of having a credit card not everyone is eligible for, then consider the advantages weighed against the disadvantages of a gold card before you sign up.
Advantages of a gold credit card:
- Rewarding rewards programs. Just about every gold card will offer some sort of rewards program. Not only that, it is usually easy to earn rewards and you can redeem them not just for airline rewards points, but for gift vouchers and merchandise that you will actually want and use.
- Travel insurance. Most gold cards will also include travel insurance, which can cover you overseas and domestically when you travel, and often extends to your family travelling with you too.
- A long interest free period. One of the concessions you make in having a gold card is accepting a higher interest rate, however your gold card will also give you every chance to repay your balance before it accrues interest because a gold card interest free period is usually 55 days.
Disadvantages of a gold card:
- A higher interest rate. In exchange for the extras, the insurance, the rewards and the service you get with a gold card, you’ll also usually have a higher standard interest rate applied to your balance.
- A higher annual fee. Similarly you may be hit with a higher annual fee on a gold card, in exchange for the rewards and benefits of the card, and the higher running costs the bank faces to offer you those features.
Platinum Credit Card
The platinum credit card is at the top of the credit card hierarchy with regards to the rewards and prestige they are selling you, to encourage you to sign up. However, a platinum card can also come with higher costs so it is important to consider whether those fees are reasonable for the rewards, whether you will get real value out of the rewards, or whether that particular platinum card is overpriced, and you can make comparisons to find a better deal on a platinum credit card.
Advantages of a platinum credit card:
- Personalized and priority service. Many platinum credit card providers will give you a separate customer service number so you don’t have to call their regular call centre, pressing buttons and waiting on hold, you can instead be put directly through to someone who can help with your question. You may also receive access to what many banks call their concierge service where you can make one call and have your ‘virtual personal assistant’ book dinner, order flights or call you a taxi.
- Greater rewards. Where the rewards programs of a gold card are good, those of a platinum card are even better and you will often earn more rewards points per dollar you spend, and have access to more valuable rewards deals.
- More inclusive travel insurance and protection. Where the travel insurance offered on a gold card may be for three months, a platinum card will offer you six; where the extended warranty on an item may add 12 months when you use your gold card, you can be eligible for a 24 month extended warranty for purchases on your platinum card.
Disadvantages of a platinum credit card:
- A greater annual fee. While in general the annual fee of a platinum card will be more than that of any other credit card, it doesn’t mean you can’t shop around for the lowest annual fee platinum credit card.
- A greater interest. Similarly the interest rate on a platinum card may be higher than a standard credit card, but at the same time, many providers work hard to offer you the same interest rate on their platinum cards, as on their gold card and standard card offers – the hope then is that with your increased credit limit, you build up a higher balance and are tempted to let it roll over, earning the bank more interest anyway.
When comparing the types of credit cards available, understanding what all the options mean, can help you discard those cards which don’t suit your needs. You can also take advantage of great offers you didn’t even know existed, but which can help you control your finances and be rewarded at the same time.
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