Credit Cards » Credit Card Guides » How to Reduce Your Credit Card Interest Rate
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How to Reduce Your Credit Card Interest Rate

The Fed has raised interest rates three this year - and more anout to come.  As a consequence, most banks will probably increase the rates on their credit cards. Instead of taking out new loans and credit cards, why don't you consider reducing the interest rate on your existing ones?

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

Table Of Content

Based on a survey by CreditCards.com, the national average credit card rate in 2019 stood at 17.57%. Americans who held bad credit cards were charged the highest interest rate of 24.99%, while the credit card for low interest enjoyed lower rates at 14.61%.

Chart: Credit Card Rates in the U.S. 2019, by Card Type

Instead of taking out new loans and credit cards, why don't you consider reducing the interest rate on your existing ones?

Fortunately, exorbitant interest rates do not have to be a part of your credit card experience. Negotiating a lower interest rate is possible if you know who to talk to and what strings to pull. If you're willing to put in the effort to get inside your credit card company's head and spend a couple of minutes on the phone, there's a good chance you'll save a few thousand dollars over the next year. Not to mention you can achieve some other benefits.

Unfortunately,  most people don't even try to do it. It might sound strange, but many people feel shy to ask about better terms. Others think this is not possible and is not worth the time and effort.

Why Try to Get Your Rate Lowered?

If you tend to carry a balance on your card, negotiating a lower rate will mean that you will incur less interest charges each month. This will allow you to repay more of the card balance rather than just covering the interest charges.

For example, if you currently budget to pay $150 each month on your credit card, and you can drop your interest rate by a couple of percent, you can continue to pay the same amount, but you’ll be paying more off the card balance.

The wider implications of this will be that you can improve your credit score. If you’re paying off more from your account balance, you will be lowering your credit utilization ratio, which is a major factor in calculating credit scores.

Why is My Credit Card Interest so High?

Credit card interest rates are usually based on your risk profile. The credit card provider will assess your credit score and set your rate accordingly. If you have a high credit card interest rate, it is likely because you have a lower than desirable credit score.

However, this doesn’t mean that you have a poor credit score. Some credit cards are designed for those with excellent credit as they offer some impressive benefits. So, if you have a very good score, it may be lower than desirable, which is reflected in the rate you receive.

You can also see an increase in your credit card rate if you fail to meet the card terms and conditions. Some card issuers impose an interest rate penalty if you have missed payments or have late payments on your account.

Now, let's take a look at some of the steps you can take to reduce your credit card interest rate.

Maintain A Good Credit Score

Outstanding credit ratings can always result in lower rates without even contacting your lender.

Your credit score shows a borrower's performance when it comes to paying their debts (If you still don't know your credit score – learn how to find it). If you don't delay payments and your debt is under control, your credit rating will be very high. This is a sign that you are a trustworthy borrower.

You might also consider requesting free credit reports.

They are provided by the three major credit agencies (Experian, TransUnion, and Equifax). These reports can open your eyes. Virtually. On paper, you will be able to track down all your payments, history and everything you need to know regarding your bank accounts.

According to Experian, the average credit score for the United States residents was 703 across all age groups in 2019. This was only 3 points below the average credit score for people in age 50 – 59, which scored 706 points. Adults in the 20 – 29 age bracket had the lowest credit score at 662. This is 13.14% less than those in the age group of 60+ who scored 749 points.    

Chart: Credit Scores in the U.S. 2019, by Age

Don’t forget:

Perhaps there are some errors that might affect negatively your credit score. Be always on the move to dispute them and reverse the process. (If you don't have credit, read how to get a credit card with no credit history).

Most people pay each month only the interest on their loans. This increases non-stop the amount of money you own. Try to pay off some of your loans, not only the interest. Debt reduction improves significantly an individual's credit score. As always, technology can help us a lot. Also, there are >several cool apps that help you track your debt reduction.

It's convenient and free. The sooner you get your financial situation under control, the better your credit score will be (See how to get your credit score for free). Finally – bad credit it's not the end of the world – there are great ways to repair your bad credit.

Negotiate With Your Credit Card Company

The first thing you need to do is consider which card issuer you should approach. Look at how long you have had your accounts open and choose the one with the longest history. Give your card issuer a call and let them know that you want to negotiate a rate reduction. Let the issuer know if there is a reason for this, such as a change in your circumstances or that you are building your credit to pay off debt.

However, you don’t need to be in financial hardship to negotiate a lower rate. If you’ve been receiving card offers in the mail with lower rates, you may be able to convince your issuer that you can attract a better rate.

  • Convince your current bank –  show them you make payments on time. Another ace up your sleeve could be the fact that you have been a client for a long time. This is a serious argument since banks appreciate loyal clients. Last but not least, tell them you have received better offers from other banks.
  • Flexibility – you should be persistent. If you crack under the pressure,  you will not achieve anything. However, being too focused on the terms you want is not the best idea. Be flexible and ready to make compromises.
  • Use your credit history – it is a good idea to mention your history of making on time payments and whether the issuer would reduce the rate as a reward for your reliability and loyalty.
  • Be polite – just remember to be polite. There is no point in losing your temper and shouting at the rep. Try to be methodical in your reasons for requesting a lower rate.

How Can Paying Down Debt Can Lower Your Card Rate?

Credit card issuers and other potential lenders look at a variety of factors when making a lending decision. One of these factors is your credit utilization ratio. This is a percentage that represents the amount of debt you have compared to your credit limits. So, if you have card limits totaling $10,000 and total balances of $3,000, your credit utilization ratio is 30%.

Additionally, paying down your debt can highlight your ability to make payments regularly. Each time you make a payment on your accounts, it is registered with the credit bureaus. This helps to build your credit score, which will help you to secure a lower rate on credit cards, loans and other financial products.

I Didn't Get a Lower Rate. What's Now?

If your card issuer refused your request for a lower rate, don’t lose heart. You’ll need to continue making your monthly payments on time each month to show that you are a responsible customer.

You can try speaking to your card issuer again in three to six months. Ask again for a lower rate and you could mention if you’ve had any new lower rate card offers from other card issuers.

Just don’t overplay your hand. While threatening to close your account may seem like a good negotiating tool, it could actually harm your credit. If you cancel a card, your credit utilization ratio will go up, which will cause your credit score to drop. Instead be polite and explain that you are a long standing customer with a good track record.

I Got a Lower Rate. What's Now?

If you do secure a lower rate, it is crucial that you ensure that you continue to make at least the minimum repayment each month. Late payments or missed payments may lead to your card issuer reverting the account back to the old rate.

It is also a good idea to take advantage of the lower rate by trying to pay more off the balance of your card each month. If you are having some financial issues, take advantage of paying less interest on your credit cards to try to pay down some of your more urgent debts. So, if you have another card with a higher rate, try to use the additional funds from the interest rate drop to pay down this card.

I'm Still Paying Too Much on Interest. What Can I Do?

If you pay your total outstanding balance by the due date on a regular basis, you will not have to pay any interest on any purchases. Some credit card companies extend their promotional periods to “up to 56 days interest-free.”

  • Make your payment on or before the due date for your outstanding balance. This is typically a minimum of 21-25 days and a maximum of 52-56 days after purchase.
  • Avoid using your credit card for cash withdrawals or money transfers.
  • Take advantage of different offers of interest-free balance transfers on credit cards and reorganize your debt.

In plain English, this means that if you buy something on the first day of the new cycle, you have a month to pay it off and then another 25 days to pay it off without interest.

A cash withdrawal transaction with your credit card is extremely costly! The interest rates on these withdrawals are higher than usual, and there is no way around it. In addition, credit card companies charge a fee for withdrawals ranging from 1.5 percent to 3 percent. So, avoid cash outs like the plague!

Consider Balance Transfer Card

A balance transfer is when a credit card holder transfers his balance to another credit card. And if the new credit card offers a lower interest rate – you can kill two birds with one stone.

If you have a high-interest credit card balance, you may want to consider transferring it, but you should think about it carefully before making any decisions. If you have good credit and are fairly certain you can qualify for a lower rate card or a card with a promotional rate, you could save a lot of money on interest charges. Transferring to a card that offers rewards for transferring a large balance during the introductory period is also a good idea. The amount of debt you can consolidate cannot exceed the new card's credit limit. So if you have a $7,000 balance on the old card and the new one's credit limit is $5500, you can transfer only $5,500.

Usually, the new credit card offers an attractive introductory rate (it could be zero in some cases) which has its period; when it ends, you have to start paying a “normal” interest rate again. There are many good offers on the market so we recommend you compare the best options. Be aware also of different fees, such as balance transfer and annual fees.

However, if your credit is less than perfect, you may have difficulty obtaining a card with a lower interest rate. You may want to consider a consolidation loan, which may provide a lower interest rate. However, you must be careful not to choose a longer loan term, as this will increase the overall cost of the debt.

How Does Credit Card Late Payment Interest Work?

If your credit card payment is received after the due date or is less than the minimum amount due, it will be considered late. In addition to a late fee, you may begin to be charged a penalty rate. This is frequently a higher interest rate stated in the card's terms and conditions.

The interest will be calculated at the end of each day and added to the balance on your card. The full balance, including the previous day's interest, attracts interest again the following day, compounding the interest.

Can I Avoid Paying Interest at All?

Yes, it is possible to avoid paying interest on your credit cards. If you pay off your card balance in full each month, you won’t need to pay any interest on your account. Card issuers have a grace period between the end of the billing cycle and your card payment due date. This is typically 15 to 21 days. If you pay off your card balance before the end of the grace period, you won’t incur any interest charges.

Another way to avoid paying interest is to sign up for a card with a 0% introductory rate. There are a number of card issuers that offer 0% for the first 6, 12 or even 18 months. This will allow you to make payments on the account each month to bring down the card balance without needing to cover any interest charges.

Final Words

Having your credit card's rate reduced is a great way to save some cash and invest in something else. The key to achieving this goal in the first place is to maintain an impeccable credit score.

This can lead to an interest rate reduction and better terms in general without even asking for it. If this does not happen, contact your bank and negotiate the terms.

FAQs

There are numerous cards offering low rates, including those with a 0% introductory rate. If you’re looking to find a card with the lowest possible rate, you should look for more basic cards that don’t offer massive rewards. In most cases, these rewards come at the cost of a slightly higher rate or other requirements.

So, you will need to assess the rates and rewards on offer to determine the best choice for you.

It may be possible to negotiate a lower interest rate on your credit cards by calling the issuer. It is a good idea to negotiate with the card issuer of the account you have had for the longest time. If you have a history of making payments on time and a strong credit score, you are more likely to have success negotiating a better rate. However, there are no guarantees, as your card issuer is not obliged to agree to a reduced rate. 

According to a report by The Nilson Report, Citi Bank was the leading credit card issuer in 2020, with 95 million credit cards. It was closely followed by Chase bank, with just a margin of 12.6% at 83 million credit cards. The two were the only banks that issued over 80 million credit cards in the period. USAA and U.S. Bank trailed in the list with 10 and 14 million credit cards, respectively.

Chart: Biggest Credit Card Issuers in the U.S. in 2020 (in millions)