How to Lower Your Credit Card Interest Rate
- October 30, 2018
- Posted by: Jeff Gitlen
- Category: Credit Cards
Credit card interest rates are on the rise. As of April 2017, the average annual percentage rate (APR) on credit cards is 15.72 percent. That’s up half of a percent from six months ago according to CreditCards.com, and the trend is up for near term rates.
If you carry a balance on your credit card with an APR at or around the average (or even as high as 29.99%), you may be paying more in interest rate costs than is necessary. Just because credit card rates are going up doesn’t mean your rate can’t go down. Although nothing is guaranteed, you have a fairly good chance of lowering your credit card interest rate using one of the following methods.
Negotiating Your Interest Rate
The shortest route to a lower credit card interest rate may be to simply ask. Credit card companies see it as being less costly to grant a rate cut than it is to lose a customer to the competition. Keeping good customers in place is easier and cheaper than acquiring new customers, so the credit card issuer may be ready to deal.
In short, you don't need to have one of those fancy metal credit cards to throw your weight around in negotiations. However, to improve your chances of success, you should do your homework and understand what factors go into the card issuer’s decision on whether to approve a rate cut. These are the key factors considered:
- How long you have been a cardholder
- The credit limit on the card
- Your credit balance in relation to the credit limit
- Your credit balances on all your cards in relation to their credit limits
- Your payment history – with special attention to any late payments
Before you call with your request, you should check your credit reports. Unless you have any problems with past payments, your credit history should be worthy of an approval. Being a long-term cardholder can also give you a little more leverage. If, however, your credit balances are too high, that may be a red flag for the issuer.
Your call to customer service should go something like this:
Hello, my name is ___________. I have been a customer for ____ years and have a perfect history of on-time payments. I have recently received several offers from other credit card companies with lower APRs, so I wanted to first check with you to see if you would lower my rate so I don’t have to switch cards.
You may not get to “yes” with the customer service rep, so you can ask to speak with a supervisor. If that doesn’t work, don’t despair. Sometimes it comes down to who you talk to. You can go to another supervisor, or the supervisor’s manager. If you are ultimately turned down for a rate cut, ask for the specific reason why and then focus your effort on rectifying that problem. For instance, if it is because your credit balances are too high, you can work on reducing your balances over the next few months.
Transfer Your Balance to a Low Introductory Rate Card
If you are looking for a rate cut because you are paying interest on a large balance, your best option might be to open a new credit card with a 0 percent or low introductory rate on balance transfers. With a balance transfer, your interest payments can be cut significantly. Opening a new credit account can also help your credit score by increasing your available credit.
It is important to keep in mind that the lower interest rate is only available for a certain period of time – typically 12 to 18 months – after which it will increase to a higher rate. So, this strategy can only work effectively if it includes a plan to pay down as much of your balance as possible while interest costs are low. Otherwise, all you did was kick the can down the road.
Refinance Your Credit Card Debt With a Personal Loan
Another way to lower your credit card interest rate is to refinance with a personal loan. The advantage of a personal loan is that it typically has a fixed interest rate for a fixed period of time. If you have good credit, you should be able to obtain a loan with a lower rate.
Banks are offering unsecured personal loans with rates in the 5 percent to 10 percent range, but they tend to require a solid credit history for approval. Alternatively, you can apply for a personal loan with any number of online lenders. These lenders have lower credit requirements and can issue loans quickly. You might not get a rate as low as 5 percent, but if you have good credit, it should be lower than a 15 percent to 24 percent APR on a credit card. Online lenders offer short term loans with rates as low as 7 percent (rates will vary considerably).
While you have several options for lowering your credit card interest rates, the common thread among them is the requirement that you have good credit for the best chance of success. If you are turned down for a rate reduction or balance transfer, don’t despair. It may take some more time, but you can improve your credit standing with a few simple steps.
- Keep paying on time. Although it takes late payments seven years to fall off your credit report, your most recent payment history (two years) is more important.
- Pay down your balances. It’s more difficult to do while paying higher rates, but if you can get your total credit balances down to 35 percent of your total credit availability, your score should go up.
- Don’t apply for new credit. Applying for credit lowers your score. If you plan on requesting a rate reduction or considering a balance transfer, don’t apply for any credit for a year prior.