4 types of credit cards you should avoid at all costs

If you can be responsible for the card, it’s a good idea to use a credit card for most of your purchases. Credit cards can have many benefits, including helping you achieve a good credit score if you demonstrate that you can use them responsibly.

But while owning a card is generally a smart move for your personal finances, there are some cards that you may have no reason to sign up for. In particular, here are four types of credit cards to avoid.

1. Credit card storage

Store credit cards typically have higher interest rates than other credit cards (and this makes a lot of sense since interest rates on cards are usually really high). The average interest rate in 2023 for cards that can only be used at the store that issued them is 30%. This figure is far higher than the average interest rate of 21.19% announced by the Federal Reserve System (Fed) for commercial bank credit cards as of August 2023.

Store cards typically offer good rewards only at the store that issued the card, and rewards programs are typically not as generous as those offered by other universal card issuers. Additionally, you may have to spend extra money to redeem the rewards you earn from your store card. For example, let’s say you’re given a $10 reward voucher that you need to use during a certain period of time, and the cheapest item you want at that time is $20. Rewards require an additional cost to redeem.

It may be tempting to sign up for a credit card issued by your favorite store, but it may be much better to use a general-purpose card that offers a lower APR and more flexible rewards program when you shop there.

2. Card without rewards

There are a ton of great rewards cards out there, so there’s generally no reason to use a card that doesn’t offer any rewards at all (except in limited cases, for example, if you’re getting a secured card to help build your credit). .

Let’s say you charge $10,000 per year on your credit card. If you choose a card that offers 2% cash back, you could actually walk away with $200 less thanks to the cash back you receive from the card company. However, if you got the card without rewards, the $10,000 charged to the card would actually end up costing you the full $10,000.

You should look for a card with a rewards program that offers bonus rewards on the most you spend. For example, if you’re a jetsetter, you might want a card that offers 5% back on travel purchases. Cards that offer no rewards at all should be passed up unless there is a specific reason to consider them.

3. Cards with high APR

If you plan to carry a balance, you should avoid cards with high APRs. The Annual Percentage Rate (APR) is a measure of the total cost of a loan during the year, including interest and fees.

As mentioned above, most credit cards have fairly high APRs. It doesn’t matter if you pay the full cost of the card. But if you want to finance your purchase over time, finding the lowest financing cost possible (such as a card with a 0% introductory APR offer) should be your top priority. That way, you can reduce your loan costs to a minimum.

4. Card with high annual fee compared to benefits

Finally, if a card charges an annual fee, avoid it unless the benefits card members will actually use are worth it.

For example, if you sign up for a card that has a $95 annual fee and also gives you a $100 credit for airline purchases, that card is fine as long as you travel enough to use the credit. But if you’re afraid of flying and there are no other unique benefits available on the card, paying $95 a year doesn’t make sense.

Ultimately, you should carefully research the credit cards you’re considering to find out how the rewards apply and what fees you could potentially face. That way you can find much better options than these types of cards you should avoid.

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