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When it comes to credit cards, there's no one-size-fits-all method. Consider these factors the next time you opt for a new piece of plastic.
The interest rate, often marketed as the APR, or annual percentage rate, is one of the most important factors to look at when opening a credit card, especially if you're carrying a balance. Why? The higher the interest rate, the more money you're going to pay over the life of your balance. You can choose a card with a fixed rate, in which case you'll know exactly what the rate is each month. Or you can choose a variable rate, which can fluctuate based on a variety of factors, such as your payment habits. Of course, a good way around this issue is to aim to pay off the balance in full each month.
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Before choosing the best credit card for you, it's essential to evaluate your spending habits to determine the best incentive program. If you're an avid traveler, then the best option would be to get a card attached to an airline or hotel group, such as the United MileagePlus card. If you're not a traveler but still want the rewards, consider a basic cash-back program, which is available with most cards. Chase Freedom, for example, is a popular card that provides 1% cash back in various categories, such as gas or groceries.
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Be aware of what you'll be charged if you make a late payment. It could be that your APR goes up substantially (possibly to almost 30%), causing you to pay more interest over the life of your credit card balance. Also read the fine print on cash-advance rates. Most of these fees vary from 2% to 5% with a minimum fee of $3 to $10, and that doesn't include the interest you're going to pay on the cash loan, which is often much higher than the interest rate on the card.
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Knowing your credit limit is essential in opening a card, because you'll need to monitor your credit utilization ratio, which is the percentage of your credit limit that you're using each month and a key factor in determining your credit score. You want to keep it under 30% to ensure you're not damaging your credit.
Sarah Kaufman is the editor-in-chief of The Manilla Folder at Manilla.com, the leading, free, and secure service that helps consumers simplify and organize all of their bills and household accounts in one place online or via the 4-plus-star customer-rated mobile apps. Sarah is also a regular contributor to Yahoo! Finance, Good Housekeeping, Woman's Day, Redbook, and other sites. For more financial tracking and budgeting advice, visit Manilla.com.