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Credit Card Basics

How to Lower Your Credit Card Interest Rate

Interest rates on your credit cards are inevitable, but they are not set in stone. It's possible to get interest rates reduced—and garner big savings in the process. The "secret" can be as simple as knowing how and when to ask. Here's an overview of the process, and some tips for negotiating successful interest rate reductions on your credit cards.

In the case of a credit card, interest is typically applied to any amount you owe that you haven't paid in full by your payment due date. Any balance that carries forward into the next billing cycle is typically subject to interest charges. Different cards calculate interest differently, but typically your interest rate is applied to that outstanding balance every day until the balance is paid off.

Many credit cards have variable interest rates, which are typically adjusted once or twice a year to align with changes in the prime interest rate or some other financial benchmark. Cards may also charge different interest rates for specific types of transactions, such as a low teaser rate on balances transferred to the card when you opened the account, a standard rate for purchases, and a higher rate for cash advances.

The interest rate your card issuer charges you is typically a function of your credit score, with higher scores usually resulting in lower interest rates. Your income also may be a factor in determining your interest rate and, especially, your borrowing limit. With average credit card interest rates currently ranging from about 13% to 23%, interest charges can add up fast. That's why it may be a good idea to get your interest rates lowered if you can.

To get a lower interest rate on your credit cards, follow the steps below.

Take Stock of Your Situation

Before you approach your card issuers to ask for lower interest rates, you'll want to take stock of the rates you're currently paying. You can find them listed on your statement, in the top rows of the table known as the "Schumer box." The entry for "Annual Percentage Rate (APR) for Purchases," which affects daily charges and related balances, is the one to focus on when seeking rate reductions. Note this figure for all of your open credit card accounts.

In addition, if there's urgency in your desire for lower interest rates—if you're unexpectedly unemployed, for example, or have experienced a medical emergency or other circumstances that create a financial hardship, you can include that information along with your request for an interest rate reduction. Be prepared to explain the situation clearly, briefly and in a matter-of-fact fashion.

It's also helpful to take a look at your financial situation with a mind toward the way credit card issuers do business and the reasoning they apply when setting interest rates. Credit scores are designed to predict the likelihood you'll fail to pay back your debts, with lower scores corresponding to a greater likelihood of payment failure. Lenders tend to view customers with lower credit scores as riskier to work with, and they charge them higher interest rates to compensate for the extra risk. So if you're looking for lower interest rates, one way to make a case for them is to show you've increased your credit score.

Work on Your Credit

To that end, take a look at your credit score and check your credit reports. Correct any errors, but also verify that you've gone at least 12 months without any late or missed payments before you try to plead for an interest rate cut. If you have a sense of what your credit score has been in the past, and can confirm it has increased, that's great. Otherwise, start tracking your score each month to document improvements. Then take a look at some steps you can take to improve your credit score.

Apart from keeping all your payments timely, one area to focus on is your credit utilization. Do your best to pay down any high account balances and try to get outstanding balances (on each individual card and across all accounts collectively) below about 30% of their respective borrowing limits. The lower the rate the better, but experts agree that utilization levels greater than 30% can drag down your credit score. For the best scores, keep your utilization at 6% or lower.

Do Additional Research

Another way to gather evidence to help your case is to check offers from other card issuers to see if they are proffering lower rates than the ones you're currently paying. Look for offers you may have seen in the mail or email solicitations, and also consider looking into offers suggested through Experian CreditMatchTM. Make sure you're comparing their everyday purchase rates (not temporarily low introductory rates) to the rates you want lowered. If you consistently see offers for cards with lower rates than those you currently pay, there's a good chance your credit standing has improved.

Have a Strategy Before You Call

When you've compiled your evidence and are ready to make your case, start calling your card issuers one by one, using the customer service number printed on your card. There's no need to plan every word you'll say, but it's a good idea to have a general outline of what to say and do:

  • Give the customer service rep a brief recap of your history with the company: how many years you've been a cardholder, how long you've been making monthly on-time payments, and so on. Tell them you're seeking an interest rate reduction, and briefly state the reasons you think you deserve one (credit score improvements, offers you're receiving for cards at lower rates, financial hardships and the like).
  • If the rep tells you they can't change your interest rate, ask to speak to a supervisor who might have greater authority. Be polite but firm and persistent. Negotiating your interest rate is a perfectly reasonable thing to do.
  • If you're told a rate cut isn't possible, consider asking for a temporary reduction. This can be an especially effective and helpful tactic if you're seeking relief from a financial setback.
  • Consider telling the issuer you'll cancel the card if they're unwilling to work with you—but only if you're prepared to follow through on that promise. Note that the account will need to be paid in full before you close it, so this approach may ring hollow if you have a high balance on the card. Also keep in mind that cancelling a card reduces your total borrowing limit and will increase your overall utilization if you have outstanding balances on any other cards.

Take careful notes during each call, recording the date, time and names of any people you speak to. If your efforts are unsuccessful, you can plan to try again in three to six months, and your notes may come in handy.

Prioritize Cards by Age or Interest Rate

If you've had a credit card for a while and have a solid record of timely payments, that history can give you some leverage. Try calling the issuer of the card you've had the longest. Explain that you have made on-time payments for several years and ask whether they would consider reducing your interest rate by a few points.

Stick to your call outline. If you're successful, you'll gain confidence and additional evidence to use when speaking with other card issuers. If your efforts don't pay off this time, try another card issuer.

Consider focusing on the cards with the highest interest rates and working your way down the list through those with lower rates. Or, if your outstanding balances are concentrated on just one or two cards, consider trying to get those interest rates reduced first, even if their rates aren't the highest.

No matter what, plan on calling every card issuer. You never know which will be open to reducing your interest rates, and any decrease in interest rate will allow more of your payment to go toward paying off the principal you owe and reducing your overall debt.

Don't Give Up

If your efforts at getting an interest rate reduction don't pan out, don't despair. Continue paying your bills on time and paying down your balances, and plan on trying to renegotiate again in a few months' time.

In the meantime, to strengthen your negotiating hand, consider looking into a balance transfer credit card that you can use to pay off one or more of your accounts in full. If you call a card issuer and tell them you've just paid off your card in full or are about to do so, they may take your promise to close your account more seriously than if you've got a sizable balance on the card.

Credit card issuers know it's hard to gain customers, and they hate to lose them, so eventually you'll likely have some success in your negotiations.

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