Types of Credit Cards

When considering what types of credit cards may be available or suitable, there are numerous possibilities on offer.

To begin with, not all plastic cards are credit cards. Many cards that can be passed over to a machine for payment are in fact debit cards. A debit card is different to a credit card because with a debit card the costs are debited directly to the cardholder's bank account. In effect, the total cost will be taken from your account immediately.

The mechanics of a debit card transaction are usually simple. The cardholder passes the card over and the card transaction systems will check the issuing bank online to see if funds are available to complete the transaction.

When originally introduced, it was anticipated that debit cards would make obsolete the conventional chequebook. In fact cheques continue to be used because they do provide 2-3 days grace to get funds in place before they arrive at the bank and they can be sent by post unlike a debit card.

By contrast, a credit card offers the person using it a line of credit linked to an account supplied by the card issuer. In use, the card will usually be checked by the vendor's system against the card issuer's database to ensure that sufficient authorised credit is available.

The cardholder receives a monthly bill from the card issuer that may be paid immediately in full, in which case no interest will be charged. If the bill is not paid in full, it's possible to pay a variable portion of it (subject to a stated minimum payment) but in those circumstances the card issuer will charge interest on any outstanding balance. Most credit card issuers will charge an additional amount if the monthly payment is not received by the due date.

Although there are various types of credit card, they generally can be seen as coming into one of two categories
· Open credit cards that may be used in many outlets as required
· Store or group credit cards that may be restricted to use in specified retailers.

In the case of the former, these credit cards are true credit cards and can usually be used for multiple purposes and in many thousands of locations and outlets.

Store cards are often restricted to specified outlets. The store will have an account linked to their card and the card holder will be able to purchase items from the store on the same basis as the credit card transaction - except that this time the card will be checked against the store's records.

Credit cards come in multiple forms. They may be 'branded' in the name of any organisation or sometimes even an individual. Their facilities, costs and conditions will typically all vary considerably from one to another.

There may be gold or platinum cards that offer high credit limits and added benefits such as free insurance. The issuers may restrict these card types to applicants that can demonstrate regular and higher income. Some cards offer schemes that involve receiving a credit or 'points' every time the card is used. These credits can be redeemed for cash, vouchers or gifts, depending upon the particular scheme.

The interest rate charged on unpaid balances can also vary significantly between different types of credit card and the amounts involved. As the variations may be very significant, it's usually wise to study this carefully in advance. Some cards may offer 'interest free' facilities for periods when transferring the outstanding balance from one card to another but this may result in a much higher interest rate at the end of the 'free' period. As always, it may prove beneficial to shop around for the best deals.

Jon McGovern is from Tescocompare.com, the insurance comparison site where you can compare car insurance policy features and prices.