There are three general types of credit cards. Each has its own special uses and credit characteristics. Bankcards - which are comprised of all Visa and MasterCard credit cards - are issued only by banks, savings and loans, and credit unions. These cards give merchants the opportunity to sell their goods and services on credit. The issuing bank pays the merchant the amount of the transaction minus a service charge averaging from 1 to 4 percent. Merchants benefit from this arrangement because they avoid the need to finance their accounts receivable, thereby circumventing any credit risk and account collection costs. Cards can also help to generate higher sales - many of them impulse buys - because customers can 'buy now and pay later'. All of these benefits work to bolster the merchant's positive cash flow.

Each issuing bank sets its own credit policies - qualifying criteria, credit limits, fees and interest rates, terms and conditions, billing, etc. Visa and MasterCard do not themselves issue cards; they serve only as a clearinghouse for participating banks that are licensed to use their names. All actual credit transactions (including adjustments, disputes and credit losses) are between the customer and the card-issuing bank.

Travel and Entertainment, or 'T&E', cards comprise another credit card category. American Express-, Diner's Club-, and Carte Blanche cards are three well-known members of this group. Of course, T&E cards are not used exclusively for travel and entertainment; the vast majority of other available consumer items or services can also be purchased. American Express, for example, competes aggressively with bankcards on virtually every type of credit purchase. More vendors, however, are more likely to accept bankcards because they tend to charge the vendor a smaller service fee than that of the T&E cards.

T&E cards may charge their cardholders annual fees of $50 to several hundred dollars. They generally require full payment of billed purchases each month. This differs from the policy of bankcards, which encourages monthly installment payments that earn the issuing bank substantial amounts of interest. Because there is only one source for each T&E card, they're somewhat more difficult to qualify for than bankcards. The T&E companies also have stricter policies on late payments and will more quickly revoke credit at any initial signs of financial difficulty.

A third kind of credit card is the merchant cards. Also known as 'affinity' cards, these are the oldest type of credit card and involve only the merchant and the customer. Merchants' cards are often issued by department stores, retail chains, oil companies, airlines, car rental agencies and the like. They rarely charge an annual fee, and as with bankcards, generally promote extended monthly payments in order to encourage buying and earn additional interest.

Many credit consumers are surprised to discover the number of choices that they're presented with when selecting a credit card and how many differences there can be between even Visa and MasterCard offerings. It's therefore important to examine one's options and carefully comparison-shop before selecting a credit card. All cards are not all created equally. Choosing with knowledge and prudence can save a significant amount of money in fees and interest rates over the long term.