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Credit cards, when used responsibly, can be a valuable (and indispensible) financial tool. There are many types of credit cards to choose from. How do you choose which credit card is best for you?

-- Credit Tip by FindLocalBanks.com
Federal law requires that all creditors must state the cost of their credit in terms of an Annual Percentage Rate (APR). This rate takes into account how the loan is repaid on a yearly basis, and allows you to accurately compare the cost of credit among lenders. For example: You borrow $1000 for one year and pay a finance charge of $100. If you can keep the entire $1000 for the whole year and then repay $1100 at yearís end, you are paying an APR of 10 percent. But if you repay the $1000 and finance charge (a total of $1100) in twelve equal monthly installments, you donít really get to use $1000 for the whole year. In fact, you get to use less and less of that $1000 each month. In this case, the $100 finance charge amounts to an APR of 18 percent.

Asking yourself the following questions may also help narrow your choices.

Q. Are you the type of person that will pay off your credit card balance every month?

A. If you answered No, then you should consider credit cards that offer a low interest rate. Depending on your credit, the interest rate on a credit card can be rather expensive. The interest expense on outstanding credit card balances can easily outweigh any incentives that the credit card issuer can be offering for frequent use.

Q. Are you trying to re-establish your credit?

A. If you answered Yes, then you may want to consider getting a debit-style credit card. With these types of credit cards, your purchases are deducted from a checking account that you establish with the financial institution.

-- Credit Tip by FindLocalBanks.com
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. For example: Suppose you borrow $1000 for one year, and the interest is $100. If there is a service charge of $10, the finance charge will be $110.

Q. Would you use the credit card frequently for purchases?

A. If you answered Yes, you should focus on credit cards that offer rebates / incentives. The incentives on these types of credit cards can be cash-back, airline miles or other various forms of rewards.Click here to learn about reward cards


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