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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.

By Allan Halcrow | American Express Credit Intel Freelance Contributor

6 Min Read | November 06, 2019 in Cards



Credit cards have many variations, all with different pros and cons depending on your individual needs.

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

Debit and charge cards are sometimes mistaken for credit cards.

Living in a time when you can choose from more than 20 kinds of Triscuit® crackers, it should be no wonder that there’s an even greater variety of credit cards available. But while crackers are an easy concept to grasp, defining credit cards is harder. So, let’s define credit card (and other cards mistaken for credit cards), explore their variations, and consider the pros and cons of each. The more you know, the easier it will be to choose a card that helps meet your financial goals.


What is a Credit Card?

First, think of a credit card as defined not by its form but by its purpose: Credit cards provide you instant mini-loans to pay for goods and services. For that convenience, you typically pay interest on the amount you borrow and, often, miscellaneous fees.

That sounds straightforward, but lenders have developed seemingly infinite variations. For example, you can use general-purpose cards throughout a network of businesses that accept them but you can generally only use private-label (or co-branded) cards at the businesses that issue them; “secured” cards are designed to build (or rebuild) credit; and zero-interest balance transfer cards can save you money—if you read (and abide by) the fine print. 1

The aim is to match features to your goals.

infographic what is a credit card


Credit Cards That Can Help You Build Credit

Any credit card can help you build good credit if you 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 security deposit to the bank ($200 is usually the minimum) 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


  • Usually easy to get.
  • You can't spend more than you have.
  • When you close the account, you 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 bank doesn't report secured cards to the credit reporting agencies—so it's worth finding out.3

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 his or her account.

Pros and Cons of Authorized Users


  • Usually easier to get than your own card.
  • The card owner, not you, is legally responsible for all charges.4


  • 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.5


Credit Cards That Can Help You Save Money

Borrow money for free? Well, yes—for a short time, and with limitations. Certain cards offer a zero percent introductory interest rate and some even have low interest after the introductory period. Depending on the card, that rate may apply to new purchases, to a balance you transfer from an existing card, or both.

Pros and Cons of Balance Transfer


  • 100 percent of your payment goes towards the principal.
  • Can 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 six to 12 months.6


Credit Cards That Offer Rewards

Airlines promote cards that let you earn frequent flier miles for each dollar you spend. But there are many other rewards credit card providers that give back part of what you spend (one percent is common) 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.


  • You'll generally pay higher interest 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.

A charge card is similar to a credit card in that 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. Of course, as in most things these days there’s a bit of blur between them as charge card providers begin offering ways for customers to extend payback times.

Pros and Cons of Charge Cards


  • 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.


  • You'll pay an annual fee.
  • Late payments may hurt your credit score.7

Debit cards are not credit cards at all; they allow you to access electronic networks to use money in 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.
  • You have fewer legal protections when you dispute a charge with a merchant than when using a credit card.8 
  • In some cases (such as with hotels) more of your funds may be put on hold than you actually spend.


The Takeaway

Choosing the right credit card may never be as easy as choosing the right Triscuit®, but it doesn’t have to be as complicated as choosing the right cable package, either. Because the right combination of credit card features can directly support your financial goals—and poor choices can actually make your financial situation worse—it’s wise to define your goals, ask questions, and read the fine print.

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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