By Eileen AJ Connelly -- AP Personal Finance Writer
What's better, a low interest rate or generous rewards points? Does it matter where you use your credit card, or is it how much debt you have that's important?
Take this short quiz and find out some important information about using and managing your credit cards.
1. What's more important for your credit score?
a) Your payment history
b) How many credit cards you have
c) How long you've had your cards
d) How many times you've applied for credit cards
2. True or false: Studies have shown that people spend more when they are using credit cards than when they're shopping with cash.
3. The typical American carries a balance of $3,000 in credit card debt. If you make no more charges and pay only the minimum payment due each month, how long will it take to pay that debt off at 10 percent interest?
a) 2 years
b) 8 years
c) 18 years
d) 29 years
4. Once you open an account with a certain interest rate, the bank may raise that rate:
a) If you miss a payment on that card
b) If you miss a payment on another card or loan
c) If you lose your job
d) At any time
5. True or false: Credit card issuers always give you a "grace period" to pay your purchase in full before finance charges are applied.
6. If you pay off the balance on a high-interest credit card, the best thing to do is:
a) Close the account
b) Leave the account open but don't use it again
c) Leave the account open and use it once in a while
d) Charge up the balance again
7. True or false: You can judge whether banks think you're a good credit risk by the number of credit card offers you receive in the mail.
8. Rewards or points on your credit card are a good deal only if:
a) You get free airline tickets
b) You get cash back
c) You carry no balance on the card
d) The card has no annual fee
9. Credit card issuers look at the following when deciding whether to change your credit limit:
a) Your payment history
b) The limits on other cards you hold
c) The types of places you use your card
d) All of the above
10. How is the interest charged on your account each month calculated?
a) The annual percentage rate (APR), multiplied by your balance
b) APR divided by 12 months, multiplied by your balance
c) APR multiplied by your new charges
d) APR multiplied by the balance left unpaid the prior month
1. (a) While all of the answers factor into your credit score, the single most important element is whether or not you pay your bills on time, which accounts for about 35 percent of your score.
2. True. Several scientific studies have found people spend less when they are taking cash out of their wallet than when using plastic.
3. (c) With an initial minimum payment of 2 percent, or $60 per month, it will take just over 18 years to pay off a $3,000 debt, and you will pay some $1,935 in interest charges during that time, according to Bankrate.com. Some banks are increasing the percentage of your balance used to calculate minimum payments. But even if the initial minimum payment is 4 percent, or $120, it will still take nearly 9 years to pay off the debt, and you'll pay over $750 in interest in that time.
4. (d) Banks can change your interest rate for any reason and at any time. Rules recently passed by the Federal Reserve will require banks to notify you 45 days in advance before changing the terms of your account, but they don't restrict the moves a bank can make, and they don't take effect until July 1, 2010.
5. False. While credit card issuers are legally allowed to wait 25 days before charging interest, it is becoming more common to reduce or eliminate these periods, says Ken Lin, chief executive of Credit Karma. Check your statement or ask your bank to find out if your card has a grace period, and how long it is.
6. (c) Paying off a balance and then using a card occasionally will provide the biggest boost for your credit score. If you close the account, particularly if it's one you've had for a long time, your credit score may go down. If you don't use the card at all, you risk having the account closed by the bank. Using the card for occasional purchases or to pay a bill each month will keep the account active and should maintain it in good standing.
7. False. The offers that come in the mail are based on a range of different factors, like what magazines you subscribe to. But banks can't check your credit score without permission. So while you may get fewer direct mail offers if you've had financial trouble, even people who have declared bankruptcy get them. It's your credit score that determines your credit worthiness to a bank.
8. (c) It is worthwhile to chase rewards points if you carry no balance on the card, because the rewards cards typically charge higher interest rates. Some rewards cards also charge annual fees, but may be worth a small fee, if you redeem points frequently. If you carry a balance, you're better off searching for a card with a lower interest rate.
9. (d) Banks will look not only at your payment history and total available credit, but also your money spending habits. Card holders who suddenly start shopping in discount stores or frequently use their cards in places like bars or casinos may raise concerns, and may find their limits cut unexpectedly, according to Ben Woolsey, director of marketing and consumer research for CreditCards.com. A jump in the use of cash advances may also prompt banks to lower limits.
10. (b) To figure your monthly interest charges, banks use a periodic rate, which is your annual percentage rate (APR) divided by 12 months. So an 18 percent rate would convert to a 1.5 percent periodic rate. The method used to figure the amount that rate is applied varies, but is usually based on your unpaid balance plus new charges, minus payments.
If your score is between 0-3
Learn more about using the credit cards you hold and track your credit score and you'll likely save money in the future.
If your score is between 4-7
You've got the basics down, but you could benefit by keeping on top of credit card trends.
If your score is between 8-10
You've got a clean credit report — but make sure you use this knowledge to your advantage by managing your cards wisely.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.