How to Find the Right Credit Card for Your Budget and Spending Habits

The Importance of Your Credit Score

The first thing you’ll need to consider when assessing your credit card options is your credit score. Credit card issuers will often restrict the availability of specific cards according to credit scores. This means that if you have an excellent credit score, you should have access to almost any card on the market, while if you have a poor score, your options will be extremely limited. 

So, before you can start researching cards and filling in applications, you need to know your current score. Fortunately, there are numerous ways to access your score. Some banking or budgeting apps and platforms provide free access to your credit scores. You can also apply directly to the major credit bureaus for a free copy of your credit report once per year. 

What’s A Good Credit Score?

This is a little tricky, as we don’t simply have one credit score. There are three major credit bureaus and numerous credit agencies, which all use different credit scoring models. This is essentially what factors are used to generate a credit score. These factors can include the length of your credit history, your income to debt ratio, and your credit utilization ratio, which is the amount of credit you’re using expressed as a percentage of your total credit limits. As an example, if you have three credit cards with a total credit limit of $10,000 and a combined outstanding balance of $3,000, your credit utilization is 30%. 

The weight each of these factors have in the credit scoring models can vary, but if you want to improve your credit score, focusing on improving the above examples can make a significant impact.

All credit scores are a three digit number, with higher numbers representing a better score. For FICO, the score range is 300 to 850 and scores of over 670 are classified as good or excellent. On the other hand, VantageScore has a scoring range of 300 to 990, depending on the specific model, but generally, a score of 600 or higher is considered good. 

The Different Types of Credit Cards

Once you’ve determined your latest credit score, you can narrow down the options, but you also need to think about which type of credit card will work best for you. Credit cards can be divided into several categories.

Credit Card Type	Best For	Key Benefits	Potential Drawbacks
Cash Back Credit Cards	Everyday spending, groceries, gas	Earn cash rewards on purchases	May have category restrictions
Travel Rewards Cards	Frequent travelers	Points/miles for travel perks	Higher annual fees, limited redemption options
Low-Interest Cards	Carrying a balance	Lower APR on purchases	Fewer rewards or perks
Balance Transfer Cards	Paying off debt	0% intro APR on transfers	Balance transfer fees may apply
Secured Credit Cards	Building or rebuilding credit	Helps establish credit history	Requires a security deposit
Business Credit Cards	Business expenses	Rewards tailored for businesses	May require proof of business income
Student Credit Cards	College students	Helps build credit early	Lower credit limits, fewer perks

Rewards

Rewards credit cards offer points or miles as a spending reward. Typically, you’ll earn a set number of points or miles for every dollar you spend, but many cards have bonus categories, where you can earn a higher rate. 

For example, you may earn 5 points per dollar on travel purchases, 3 points per dollar on groceries and 1 point per dollar on all your other spending. 

This type of tiered rewards structure is quite common, but some card issuers allow you to specify which category you would like to have the highest rewards. You may also find credit cards that have “bonus” categories offering bonus rewards. 

Points can often be converted into money that is transferred into your bank account or applied to your credit card balance, used towards travel purchases using the credit card issuer’s travel portal or other gifts. 

Miles reward cards are tied to a particular airline program, so you can add your accumulated points to your airline loyalty account and use them for your future travel plans. 

Cashback

Cashback cards work in a similar way to rewards cards, but instead of accumulating points or miles, you will accrue cashback on your spending. Most cards work on a percentage basis, so you’ll get X% for every dollar you spend. 

As with rewards cards, many options work on a tiered reward structure, with a higher percentage of cashback available when you spend in particular categories. However, there are some cards on the market that offer a fixed amount of cashback, regardless of where you spend your money. 

You can accumulate cashback on your credit card account and then usually apply it to your credit card account or transfer the money into a designated bank account. 

Balance Transfer

As the name suggests, balance transfer cards are designed to allow you to transfer a balance from another card. They often offer a low or 0% APR for a set period. This can be beneficial to pay down the card balance while minimizing the amount of interest you’ll pay. Depending on your credit score, you may be able to qualify for a card that has up to two years at 0% APR. However, you should be aware that after the promotional period, any remaining balance will be subject to the usual card rate. So, if you don’t clear the balance in full, you can start paying a rate that may be higher than other cards. 

Secured

If you have a poor credit score or no credit history, you may struggle to qualify for a credit card, but this is where a secured card could work for you. Secured cards require you to pay an amount of money, which acts as the security for your account. Many cards have a direct correlation between the amount of your deposit and the credit limit for your new secured credit card. For example, if you pay a $200 deposit, you’ll have a $200 credit limit. However, this is not the case for all secured credit cards. 

While it may seem counterintuitive to hand over money to be able to use a credit card, having a credit card can help you to build your credit. The credit card issuer has the reassurance of being able to use your deposit to cover the credit card bill if you fail to pay, but you can use the credit card as you would a typical credit card. You can make purchases and then pay your bill on time every month. This activity will be reported to the credit bureaus, helping you to build a positive payment history on your credit report. 

Some card issuers offer secured credit cards with the option to transition to a regular credit card after a set period of time. Once you’ve demonstrated that you can use the card responsibly, you can automatically qualify for a new credit card and you’ll have your deposit amount returned to you. 

Understanding Revolving Debt

Now you’ve got a better idea of the types of credit cards options in the marketplace, it is important that you understand the fundamentals of revolving debt. If you have an auto loan or mortgage, these are referred to as installment debt. Essentially, you’ve borrowed a specified amount and agreed to pay a specific amount each month for a set period. 

On the other hand, revolving debt does not have these limitations. You can spend as much or as little as you like up to the agreed credit limit. Likewise, there are no set monthly repayments. The minimum amount due on your credit card account will be calculated according to the current balance and interest accrued. This often works out to approximately 5% of the outstanding balance. But, it is important to note that a significant amount of this repayment will go towards the interest charges. 

So, if you only make the minimum amount due each month, even a modest balance could take months or even years to clear. This is because the debt simply revolves each month with fresh interest charges added to the account each month. Fortunately, you don’t need to fall into this trap, as you are free to make any payment amount each month, providing it is more than the minimum amount due. You can even pay the entire balance amount in full and you won’t incur any interest charges on the account. 

How Will You Use Your Card?

Now we get to the important aspect of choosing the right credit card for you and how you will use the card will have a significant influence on your decision. 

Convenience Shoppers

If you want to have a credit card so you can safely make purchases in stores or online, then there are a wide variety of options available to you. You can simply choose the card that fits your credit score profile and your preferences. In some cases, you may be able to accumulate some great rewards with your everyday shopping. 

However, there are a few important considerations. Firstly, you need to choose a card that fits your typical spending habits. There is no point in going for a great card that offers fantastic rewards for travel purchases if you rarely travel. Instead, you need to look for a card that offers the best rewards for your typical spending patterns. For example, if you mostly buy gas and groceries, look for a card that prioritizes the rewards in these categories. On the other hand, if you don’t have typical spending patterns, you may prefer a more basic rewards card that offers the same rewards rate on all your spending. 

Another important point is that you need to make sure that you have plans in place for when the bill arrives. It is great to get rewards on your regular spending, but if you end up carrying a balance on the credit card account, it will quickly negate these benefits. So, if you use the card for everyday spending, put this amount aside in a savings account, and you’ll be able to clear the credit card balance when the bill arrives avoiding interest charges. 

The Perk Seeker

Another common reason to get a new credit card is the perks and benefits offered by the credit card issuer. There are many cards with great benefits packages that can include free subscriptions, insurances, welcome bonuses and more. For example, the best travel credit cards can provide free comprehensive travel insurances, free checked bags, complimentary food and drinks on your flights and even airport lounge access. 

If you’re a perk seeker, you need to take an objective look at the value of the benefits package for you. Again, a long list of perks can look appealing, but if you won’t use them or need to significantly alter your regular spending patterns to benefit from them, they don’t have real world value for you. 

Think about your current and future plans, assessing the credit card benefits to determine if they are worthwhile for you. Often perk heavy cards have an annual fee, so you will need to work out if the value of all the combined benefits outweighs the cost of the annual fee. 

Those Carrying a Balance

If you have one or more credit cards with an outstanding balance or even a personal loan, you may benefit from rolling all of this debt into a low or no interest balance transfer card. Since the average APR for credit cards is 24% or higher, a card that has a 0% APR rate for 12,18 or even 24 months can allow you to significantly reduce your debt. 

You will need to check the terms and conditions of any balance transfer credit card, as some impose a balance transfer fee of 3% or more. You will also need to carefully think about a payment plan that will allow you to maximize the advantage of not paying interest on your credit card debt. 

The Credit Builder

If you’re looking to build/rebuild your credit or boost your credit score, a credit card can be an excellent tool. You will need to be disciplined and your options will be determined by your current financial situation. 

If you want to boost your credit score before making a major purchase such as a home, but have generally decent credit, you should be able to find a card that offers some benefits along with the option to make regular payments. You can then use your card to make several purchases, clearing the balance with every bill. Just don’t go overboard, as you want to keep your credit utilization ratio as low as possible. 

Remember that a new card will increase the amount of available credit, but only if you don’t increase the total outstanding debt. Ideally, you want your credit utilization ratio to be as low as possible, but aim for less than 30%. 

On the other hand, if you have poor credit, you’re likely to have limited credit card options. Fortunately, there are credit cards for those with poor credit scores including secured credit card options. Again, you should use the card and pay the balance in full every month. However, you do need to make sure that the credit card issuer reports the payment activity to all three major credit bureaus. Some card issuers only report to one, which means that while this score will improve, you won’t see improvement to your scores across the board. 

Tips to Choose the Right Credit Card

With so many options, it can be daunting to decide on the right credit card, but there are some tips that can help you to narrow down your choices. 

Assess the Benefits

We’ve already touched on this, but it is important that the card provides benefits and perks that have value for you. So, think about your typical spending habits and preferences, looking for cards that match your requirements rather than trying to adapt to fit the card perks. It is all well and good to have a card with a benefits package valued at thousands of dollars, but if you won’t use these freebies, then they are worthless to you. 

Read the Fine Print

Every financial product, including credit cards, is accompanied by pages of fine print. While it is tempting to skip over the boring stuff and get right to the card application, you need to take the time to read through this document. 

The terms and conditions will detail how much you will pay as an annual fee, along with what charges will apply if you use your card outside the US, transfer a balance or want to make a cash advance. While these fees often seem like a small percentage, the charges can quickly add up. 

Don’t Apply Multiple Times

Each time you apply for a new credit card, the issuer will run a credit check and this can be logged on your credit report. When you have multiple applications, even if they are approved, it can be a red flag to potential lenders, harming your credit. 

While there are no approval guarantees, try to avoid applying for cards that you are likely to be declined. Even if a card looks like it would be perfect for you, if you don’t have the required credit score or you’ve just been approved for another credit product, wait a while.