which type of credit card carries the most risk

Which Type of Credit Card Carries the Most Risk?

For many new consumers, all credit cards are the same. However, if you spend some time on research, you’ll come across an overwhelming number of options you can choose from credit cards for travel to cards for fuel, shopping, and business.

However, the main factor that separates all the different types is risk. Banks and financial institutions often try to sell their benefits, and those benefits might not work for different circumstances.

While all credit card types carry a certain amount of risk, some are riskier than others, so you need to do your research to become more financially savvy and choose the right one for you.

There are hundreds of different credit cards available, that can make risk evaluation difficult. But we’ve got your back. In this post, we’ll walk readers through the underwriting qualifications for a credit card and explain the differences between secured/unsecured credit cards and variable/fixed interest rates. Using this information, we’ll share which type of credit card carries the most risk.

Underwriting qualifications for a credit card

Like every for-profit business, the credit card industry regularly looks for ways to maximize profits. And a huge part of the daily operations involves risk assessment and segmenting their target audiences. Credit card companies use the following factors when making approval decisions:

Credit history

The first thing credit card companies do when evaluating your creditworthiness is to check your credit score. Depending on the bank, they will label your report as bad, fair, good, or excellent. People with excellent not only get the best deals but also have less risk to deal with in terms of fixed or variable interest.


Next, the financial institution evaluates each applicant’s income and assets to determine whether they can meet the minimum monthly credit requirements.

Liabilities and debt

Many credit card companies also consider applicants’ debts and liabilities, such as car loan payments to lenders or total disposable income at the month’s beginning.

Types of credit cards by user category

What are the Main Types of Credit Cards?

Credit cards can be classified into four major categories:

Bank-issued credit cards

From standard “plain-vanilla” credit cards to balance transfers, rewards, charges, and subprime cards, there are hundreds of bank-issued options you can choose from. All options vary in terms of interest rate, terms and conditions, and rewards.

Store/shopping cards

These are credit cards offered by the service industry and can easily have interest rates up to 30%, making them one of the options that carries the most risk. However, these cards generally don’t carry an annual fee and often come with exclusive discounts or reward programs.

Student credit cards

Students are considered to be a unique target audience for credit card companies since they’re generally perceived as a low-income group. Even though they should rank them in the high-risk category, their advanced education level levels the playing field with an above-average future earning potential.

Business credit cards

Business credit cards offer higher credit limits than their general-consumer counterparts, as well as custom features like expense tracking. However, this type of credit card carries a higher risk due to variable interest rates.

Secured credit card vs. Unsecured credit card

Secured credit cards are generally offered to customers with a less-than-stellar credit score. They’re quite similar to unsecured (general-purpose) cards. With a secured credit card, you get an extremely high approval rate since you’re required to add a refundable security deposit as a safety net. However, since these cards cater to people with low credit scores, companies usually charge a high application and processing fee and higher interest rates.

Variable interest rate vs. Fixed interest rate annual APR

All credit cards have another factor in common apart from risk – interest. If a customer doesn’t pay their full balance every billing month or period, they’re going to take a financial hit. But how much exactly? Well, this depends on how much interest they have to pay, i.e., their annual percentage rates. Both variable and fixed APR rates can alter your credit card balances repayment plans. Even though variable APR gives the impression that the credit card carries the most risk and unstable, many banks offer rates lower than the fixed interest rates. Likewise, a fixed APR offers more security in terms of stability, but it makes users vulnerable to economic factors. No matter which option you choose, you could end up paying more interest if you have a poor credit score or payment history.

Types of credit cards that require extra caution when using

The type of credit card that carries the most risk depends on your use case and the terms and conditions of your bank or lender. Since all cards carry a certain amount of risk, you need to manage it by taking proactive precautionary measures, especially when you come across shady options. The most important thing you need to understand is that all credit card companies have a legal obligation to provide their terms and conditions and interest rates to potential customers. If any provider fails to highlight these things, you need to look for other options. The most important thing you need to understand is that all credit card companies have a legal obligation to provide their terms and conditions, and interest rates to potential customers. If any provider fails to highlight these things, you need to look for other options.

The following are a few cards that carry the most risk:

Credit cards with high APRs

The APR is a natural cost added to your borrowing amount, so you need to make sure you don’t fall victim to higher APRs than the market average. Look for reputable companies and ask for recommendations from others.

Cards with above average upfront fees

Riskier cards usually carry an upfront fee which is sometimes even higher than standard, reputable options. These cards are generally red flags since they ask you to pay before you’ve even made your first purchase.

Cards with low credit restrictions

Low-limit credit cards are often riskier than their counterparts since consumers have to deal with a high credit utilization ratio. More importantly, many companies might not have policies in place to increase the limit, not with an additional cost at least.

Cards with confusion promotions

Companies often use rewards or promotions to lure customers into spending more credit. However, with risky credit cards, these programs are generally too good to be true and are more creative marketing than substance. The idea is to make customers think they’re getting a great deal when in reality, they’re not.

How to minimize risk when shopping for credit cards

Compare different credit cards

The first thing you should do is look online using a browser for all the options that cater to your needs and note all their perks and value offerings. But don’t stop at their websites. Check out their customer ratings on social media and other comparative sites.

Ask about your credit cards APR right away

Many companies quote APRs as a range instead of a solid figure due to personal factors or individual circumstances. While this isn’t necessarily a red flag, you should ask your APR to make sure you know what you’re getting before proceeding further.

Zero APR doesn’t last forever

Most lenders only offer zero APR for a certain period so they can lure in more customers. However, after that period, they can hit you with an APR immediately. So, you need to ask exactly how much you would be paying and stop thinking about the rewards and benefits.


The fact is that there are risky credit cards that you should avoid at all costs, especially if you’re already struggling financially. So, whenever you’re hunting for a card, remember that you do not need to stick to just one option. Seek assistance from a financial advisor to determine your credit needs, and more importantly, always read the terms and conditions of the company your considering.