How do credit cards work?

Credit cards are a form of payment that allows you to borrow up to a certain amount (your credit limit). Each month, you’ll have a period of time to pay back the amount you charge to your credit card; if you don’t pay your balance in full by then, it will begin to accrue interest at the card’s ongoing APR.

If you use your credit card like a debit card and pay it off in full by the due date each month, you can boost your credit score without incurring interest charges. With a rewards card, you can get value back on your spending in the form of cash back, miles, or points.

You may also be eligible for added benefits like statement credits, purchase and travel protections, partner discounts, and more. Some credit cards offer introductory 0% APR periods for new purchases or balance transfers to help you avoid interest altogether for a given period. But there are also fees to remember with any card, such as annual fees, foreign transaction fees, cash advance fees, and more.

What to look for in a credit card

Consider these factors as you compare different types of credit card offers:

• Welcome offers: Most rewards credit cards provide welcome bonuses that new cardholders can earn by completing qualifying activities, such as spending a certain amount on the card in the first few months after account opening. A sign-up bonus can be a quick and easy way to get big value from a card as a new cardmember.
• Rewards rates: Rewards credit cards provide rewards like cash back, points, or miles. Consider the type of rewards rates and spending categories that best suit your spending habits and lifestyle. For example, you might want a card that earns more at gas stations if that’s one of your biggest expenses. Similarly, earning bonus points on travel purchases could make sense for frequent flyers.
• Perks and benefits: Benefits vary widely by card and card issuer, but could include 0% APR offers, travel and purchase protections, travel credits, elite status, and more. It makes sense to consider cards with benefits that align with your budget and lifestyle.
• Eligibility requirements: The best credit cards typically require good to excellent credit to qualify, as well as other creditworthiness factors. It’s worth checking your credit score first and then seeing which cards to consider based on that information. If you have little to no credit history, a student or secured credit card could make sense.
• Fees and interest rates: Some cards have annual fees while others don’t. The same applies to foreign transaction fees, balance transfer fees, and other penalties. Be sure to consider these additional costs as you research different credit cards.
• Credit reporting: Most cards from large financial institutions report activity to the three major credit bureaus, but that doesn’t mean all lenders report this activity. While it likely won’t be an issue, it could be worth checking to see if a credit card company reports activity to Experian, Equifax, and TransUnion.

Types of credit cards

Many types of credit cards exist, and certain card categories may overlap. For instance, airline and hotel credit cards might also fall into the category of travel credit cards. Likewise, some 0% APR cards may also earn cash back. Comparing credit card offers can help you choose the best one for your wallet.

Cash-back rewards credit cards

With a cash-back rewards card, you earn valuable cash back on every purchase you make with your card. Depending on how the card’s rewards are structured, you might earn cash back at a flat rate, such as 2% back on all purchases, or tiered cash back in different bonus categories, such as higher returns on grocery or gas expenses.

Many credit card issuers let you redeem rewards for a statement credit, check, gift card, or bank account deposit. Some even let you convert your cash back into points you can use for travel bookings.

Balance transfer credit cards

Balance transfer cards can be invaluable for consolidating credit card debt and reducing your interest costs. Many balance transfer cards offer a 0% introductory APR for 12 months or more, meaning you can transfer your debt from a high-rate card and pay it down during the intro period without incurring interest charges.

After a balance transfer card’s intro APR period ends, the card’s regular interest rate applies, so ensure you pay off your debts in full before then. Certain balance transfer cards may also earn rewards.

0% introductory APR cards

Zero percent introductory APR cards are closely related to balance transfer cards, but instead of an introductory APR on balance transfers, you also get a 0% intro APR on new purchases. That means you could use it to pay a large expense over time and avoid credit card interest.

Like balance transfer cards, 0% APR cards often offer no interest for 12 months or more, but the regular APR kicks in when the intro period expires.

Travel credit cards

You can earn points to offset future trips with a travel rewards credit card. Unlike cash-back credit cards, which may offer flat-rate rewards, travel rewards cards typically have a tiered rewards structure. For instance, you might earn 5x points on flight or hotel purchases, 3x points on restaurant purchases, and 1x points on everything else.

Rewards structures, card benefits, and redemption options vary. Still, you can generally use your points to book trips via your card’s travel portal, transfer points to an airline or hotel partner, or redeem points for cash, a statement credit, or a gift card. Many travel cards offer generous welcome bonuses you can earn after meeting a minimum spend within a certain time frame, often three or six months.

Airline credit cards

An airline credit card can be useful if you’re loyal to one airline. For instance, if you frequently fly Delta, a Delta SkyMiles credit card could help you earn miles to offset your flight costs. Generally, airline cards offer the highest earnings rates on flight purchases, though some may let you earn rewards on things like hotel stays and car rentals too.

Many airline credit cards offer perks like priority boarding, free checked bags, seat upgrades, and airport lounge access. Some also give you complimentary elite status, which can result in even more benefits.

Hotel credit cards

Hotel credit cards can be practical if you strongly prefer one hotel brand over others. For example, a Hilton credit card could be a good choice if you love Hilton hotels.

Hotel cards typically offer the highest reward rates on room reservations, but you might also earn rewards by using your card for airline tickets or rental cars. Some hotel cards have benefits like early check-in, late check-out, free breakfast, or room upgrades, and certain ones may even give you elite status.

Student credit cards

Student credit cards are designed specifically for college students. Many student cards have lower credit score requirements than other cards, making them more accessible to young adults with thin credit files. Certain cards also offer rewards programs, letting students earn cash back or points on purchases made in popular rewards categories like restaurant or rideshare purchases.

Secured credit cards

Like student credit cards, secured credit cards are designed to help cardholders build their credit. But these cards typically require a security deposit, which often equals your total credit limit. If you’ve had past financial issues, a secured credit card could help you rebuild your credit with responsible use.

Business credit cards

Business credit cards are designed for people who want to earn rewards to offset their business expenses. Cash-back business credit cards may offer flat-rate rewards or tiered rewards in popular purchase categories, like office supply stores or shipping purchases. You can also find travel rewards business cards that earn points or miles; typically, these cards come with a tiered rewards structure.

Business credit cards may come with welcome offers or travel benefits that make business trips easier, such as priority boarding or airport lounge access.

Store credit cards

Store credit cards can work a bit differently than other credit cards. Many of these cards — though not all — can only be used at a specific group of stores. With store credit cards, you can often earn store-specific rewards on your in-store or online purchases, and many offer perks like exclusive coupons, free shipping, or extra time to make returns.

Should I open a credit card?

You should consider applying for a credit card if you want to:

• Build your credit history
• Earn rewards
• Take advantage of benefits, such as a 0% APR offer on purchases or balance transfers
• Have a source of emergency funds
• Increase your purchase protection
• Easily track your expenses

However, credit cards aren’t for everyone. Their high interest rates and fees could lead to overspending and debt, but they can also be useful financial tools if used responsibly.

FAQs about credit cards

How do you get a credit card?

You can apply for a credit card once you turn 18, though it might be easier to qualify without a co-signer after age 21. You typically need proof of income to qualify before you turn 21, so becoming an authorized user on a card or looking into secured or student credit cards could make sense.

What credit card offers the best cash-back rewards?

These are the best cash-back credit cards available:

• Chase Freedom Unlimited®
• Blue Cash Preferred® Card from American Express
• Blue Cash Everyday® Card from American Express
• Capital One Savor Cash Rewards Credit Card
• Citi Custom Cash® Card
• Discover it® Cash Back
• U.S. Bank Shopper Cash Rewards® Visa Signature® Card

What are the benefits of a travel credit card?

Common travel credit card benefits include:

• Earning points or miles that you can redeem for travel
• Travel insurance or coverage
• Elite status with an airline or hotel
• Airport lounge access
• Free checked bags
• Early boarding
• Free hotel night award
• No foreign transaction fees
• Reward transfers to travel partners
• TSA PreCheck or Global Entry application credit

What is the best credit card you can get?

The best credit card to open depends on your unique situation. Frequent or occasional travelers might benefit from a travel rewards credit card, while those who don’t travel often could find value in a cash-back credit card. If you have significant debt, a balance transfer card with a 0% introductory APR could be the best credit card, while a student credit card might be the right card if you’re in college and interested in building credit.

What are the best credit cards for travel rewards?

The best travel rewards card for you is one that aligns with your spending habits and travel preferences. Some of the most popular travel rewards cards are:

• Capital One Venture Rewards Credit Card
• Chase Sapphire Preferred® Card
• Capital One Venture X Rewards Credit Card
• American Express® Gold Card
• U.S. Bank Altitude® Connect Visa Signature® Card
• Citi Strata Premier℠ Card
• Bank of America® Premium Rewards® Credit Card

Should you have multiple credit cards?

Adding more than one credit card to your wallet can be useful. For example, say you opened a student credit card in college to begin building credit. Now, you have a good credit score and your career requires more frequent travel, so you’re looking for a travel rewards card to help maximize your flights and hotels.

Different types of credit cards — cash back, balance transfer, travel rewards, 0% APR, small business cards, etc. — can all serve different purposes. If you have multiple credit cards to serve different needs, you can ensure you get the best value for every purchase.

Just be careful not to add multiple cards at once. Applying for several cards in a short amount of time could result in multiple hard inquiries on your credit report and temporarily reduce your credit score.

Our methodology

We researched nearly all available credit cards from major credit card companies and separated them into different categories. We did not research every credit card available from every financial institution. For each category, such as travel or balance transfer, we created a rubric to rate the cards according to their benefits, fees, and other factors.

Based on the results of the rubrics, our research, and expert opinion, we created a best list of credit cards for each category. For each best list, we designated an overall best credit card for each category.

Our list of the best credit cards is comprised of the best overall credit card from each category.