The modern credit card was the successor of a variety of merchant credit schemes. It was first used in the 1920s in the United States, specifically to sell fuel to a growing number of automobile owners.
With the advancement of banking systems, credit cards have evolved from a simple way of doing cashless transactions to multiple types with different interest rates, fees and reward programs.
Irrespective of the credit card issuer, credit cards come in the following types:
- Standard Credit Cards
- Reward Credit Cards
- Specialty Credit Cards
Standard credit cards
These credit cards are the most common and are readily available from most banks and financial groups. These cards provide the basic functionality of a credit card doing cashless transactions and nothing more.
For e.g. Mr Kumar uses the card to purchase fuel on the card. However, he is charged fuel surcharge since he is using a standard credit card.
Reward credit cards
These types of cards have become popular in recent times. These cards allow users to earn incentives for making purchases with their credit card. Points accumulate for the amount charged on the card, and cardholders can redeem these points for various rewards. These cards can be sub-divided into:
Cash back credit cards
This type of credit card allows you to earn cash rewards for making purchases. The more the card is used, the more cash rewards you receive. Most cash back cards earn users around 1 percent of total purchases, excluding interest and finance charges.
For example, Sameer purchased a couple of books online for Rs 10,000. He got Rs 100 credited back to his credit card account.
Hotel or Travel credit cards
These credit cards are specific to hotels and travel. Some of these cards are co-branded with hotels. These credit cards allow you to earn points for all purchases, in addition to bonus points for the money spent on stays at the respective hotel. You can redeem your points for free nights and discounts on food and beverage services.
For example, Mr Sahni used his credit card to stay at a hotel and when he redeemed the points accumulated on that card, he stayed one night at the hotel, free of charge.
Retail credit cards
These credit cards are co-branded with major retailers and points are accumulated by making everyday purchases, though cardholders are awarded with double or triple points for making purchases from the co-branded retailer.
For example, Sam paid some purchases at the major retail brand he frequently visited and on redeeming his points he was able to purchase an item free of charge.
Airline/Frequent Flier credit cards
These cards are associated with one airline. Typically, the cardholder accumulates points from both making purchases with the card and by flying on the specified airline. A user can fly a certain amount of miles free of charge by redeeming the 'miles' accumulated.
For example, Mr Bhatia uses the points on his card to fly free the first leg of his journey when he is going on a business trip.
Specialty Credit Cards
These types of cards are for consumers with unique needs for their credit use. Examples of such speciality cards are:
Business credit cards
A business credit card offers the business owner the opportunity to keep business and personal expenses separate. The credit card may offer special business rewards and saving opportunities that go above and beyond what the individual credit card owner may have. Since money management is essential in successfully running a business, the card may offer an expense management service that will allow you to keep track of the outgoing money.
Prepaid Debit Cards
Prepaid debit cards has grown significantly in usage in recent years. Although they work like a traditional credit card, with prepaid debit cards, you have actually prepaid and set the credit limit by depositing money onto the debit card.
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