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3 Types of Credit Cards You’re Better Off Avoiding

A young adult pays for a shopping purchase with a credit card.

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Credit cards could get you into trouble if you rack up balances you can’t pay off by the time they come due. But if you’re able to pay off your credit card bills on time and in full, credit cards could be a useful financial tool for you — if you choose the right ones. Here are a few credit card types you may want to avoid.

1. Store credit cards

A store credit card works at the specific retailer you get it from — whereas your Visa or Mastercard will pretty much be accepted almost anywhere. But that’s not the main reason to steer clear of store credit cards.

Although these cards can offer nice perks like cash back to spend at the retailers behind them, they also tend to charge exorbitant interest rates. So if you rack up a balance on a store credit card that you can’t pay off right away, it might cost you more in interest than what another credit card of yours might charge.

2. Credit cards with mediocre reward programs

If your credit is poor, you may not qualify for the best rewards programs out there. But if you have strong credit, you may find that you’re eligible for a number of great credit card offers. As such, there’s no reason to settle for a credit card whose rewards program is uninspiring.

If a given credit card doesn’t offer bonus cash back in any specific spending category, that’s a sign to potentially look for a different card. You can commonly find more than 1% cash back in select categories, whether it’s gas or groceries. And even if you’re only able to snag 2% back on gas and nothing else, that’s better than being limited to 1% back on all purchases across the board.

3. Credit cards with a huge annual fee you may not make back

You don’t need to write off credit cards that come with an annual fee, because sometimes, that fee is worth paying. A card with a $95 annual fee that lets you earn an additional $300 in cash back, for example, is a card it could make sense to hang onto or apply for.

But be careful with credit cards that charge a higher annual fee and don’t offer enough in the way of rewards to help you make your money back, whether it’s gradual rewards or those you can snag upfront. You may be lured by a card with a larger fee and massive sign-up bonus. But if the spending requirement for the sign-up bonus is also very high, you may not hit it. That could leave you forking over a lot of money for a fee and getting not enough in return to make it worth it.

As of the first quarter of 2023, U.S. credit card balances totaled $917 billion, according to TransUnion. So clearly, consumers are more than comfortable with the idea of using credit cards. And there’s nothing wrong with using them to make purchases regularly as long as you make an effort to steer clear of credit cards that charge lots of interest, reward you minimally, and don’t give you enough back in return for a high annual fee.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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