6 Min Read | Updated: August 15, 2023

Originally Published: November 06, 2019

What Is a Credit Card? Definition of Credit Cards and Their Types

Here's a definition of credit cards and an exploration of the different types of credit cards. Find the credit card that's right for you and apply online today.

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This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.


There are many types of credit cards, each with different pros and cons depending on your individual needs.

Different credit cards can help you build credit, save money, or earn various types of rewards.

Debit and charge cards are sometimes mistaken for credit cards.

Credit cards are powerful financial tools that can provide access to funds for qualified users. But what is a credit card, how does a credit card work, and are all credit cards created equally? Let’s define credit card, describe credit card variations, and consider the pros and cons of each. We’ll also learn about other types of cards commonly mistaken for credit cards and understand how they work. The more you know, the easier it will be to choose a credit card that helps meet your financial goals.

What is a Credit Card?

A credit card is a small piece of plastic with a chip or magnetic strip that can fit in a wallet. But, it’s probably more useful to understand what a credit card is based on its purpose: credit cards provide you with access to a cash substitute to pay for goods and services. For that convenience, you typically pay interest on the amount you borrow and, sometimes other fees.


There are many kinds of credit cards. For example, you can use general-purpose credit cards at most businesses that accept credit cards, while usually you can only use private-label (or co-branded) cards at the businesses that issue them. Secured credit cards are designed to build (or rebuild) credit, and zero-interest balance transfer cards can save you money on interest if you read (and abide by) the terms and conditions.1


It’s useful to select a credit card with features that match your goals.

Credit Cards That Can Help You Build Credit

Any credit card can help you build good credit if you are 18 years or older, use it responsibly, consistently use only a small portion of your available credit, and make on-time payments.2 But some cards are designed to help you build credit.


Secured credit cards are secured by cash: You make a cash deposit and get a credit card with a limit equal to that deposit. You then use the card and make payments toward your balance to show that you are a responsible borrower.

Pros and Cons of Secured Credit Cards


  • Are generally easier to get approved for.3
  • You can't spend more than you have.
  • When you close the account, you can usually get your deposit back. 


  • You have to have cash to deposit.
  • Because it's your cash, credit limits are usually low.
  • Won't help you build credit if the creditor doesn't report to the three major credit reporting agencies—so it's worth finding out.4


You can also get a credit card as an authorized user. The owner of a credit card (typically a parent or spouse, but it could be anyone) grants you charging privileges on their account. The authorized user has their own credit card with their name on it but is not legally responsible for making payments.

Pros and Cons of Authorized Users


  • Can be easier to get than your own card.
  • Could help you build credit history if the creditor reports to the three major credit reporting agencies.5


  • You and the card owner are linked; if either of you makes a late payment or misses a payment, both credit profiles might suffer.
  • May not be as effective for building credit as your own cards.6

Credit Cards That Can Help You Save Money

If you review the terms and conditions, stick to certain practices, and stay informed, you could actually save money using a credit card. This is especially true with balance transfer credit cards as some of these credit cards may offer a zero percentage introductory Annual Percentage Rate (APR). The intro interest rate may apply to new purchases, to a balance you transfer from an existing card, or both.

Pros and Cons of Balance Transfer Credit Cards


  • Your payment goes towards the principal, not interest.
  • It could save you a lot of money if you were being charged high interest on the previous card.


  • Hard to get if you don't have good credit.
  • The zero percent rate typically lasts at least six months.7 Just remember to read the terms and conditions for specific rules.

Credit Cards That Offer Rewards

Airlines promote credit cards that let you earn frequent flier miles for each dollar you spend. But there are many rewards credit cards that give back a percentage of what you spend or give you points that you can redeem for merchandise or experiences. And beyond the airline, points-generating travel and hotel credit cards also are popular.

Pros and Cons of Reward Cards


  • If you plan well, you can leverage your basic spending into some nice perks.
  • If you travel regularly, you could accumulate travel points easily or make travel purchases with points.


  • You may pay a higher annual fee than on standard cards.
  • If you typically carry a balance, that can add up fast.

Cards That Are Not Credit Cards

Before you choose which credit card is right for you, consider two other options that many people think of as credit cards but that don’t meet the definition: charge cards and debit cards.


charge card is similar to a credit card since you can use it for purchases that you will pay for later. However, they’re not credit cards because you have to pay the full balance each month. Though some charge card companies do offer ways for customers to extend payback times.

Pros and Cons of Charge Cards


  • There’s generally no set spending limit, which gives you more flexibility.
  • Can help you discipline your spending because you can't spend more than you can pay back.


  • Usually has an annual fee.
  • Late payments may hurt your credit score.8


Debit cards are not credit cards at all; they allow you to access electronic networks to use money from your checking account in real-time.

Pros and Cons of Debit Cards


  • They're widely accepted.
  • You can’t spend more than you have. 


  • Overdraft charges may apply if you try to spend more than you have.
  • You have fewer legal protections when you dispute a charge with a debit card.9 
  • In some cases (such as with hotels), more of your funds may be put on hold than you actually spend.

The Takeaway

A credit card can be useful and help build credit history when used responsibly. With the right combination of credit card features you could directly support your financial goals. On the other hand poor choices could actually make your financial situation worse. When you’re ready to choose the right credit card for you, start by defining your goals, ask questions, and remember to read the terms and conditions.

Allan Halcrow

Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. He is also the author of four books on management.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.