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How To Lower Credit Card Interest Rate?

Issuers increase the rates on their credit cards. Besides applying for a low interest card, how to lower interest rate on credit card?
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table Of Content

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.

Key Takeaways

  • One way to keep your credit card rates low is to maintain a good credit score. To achieve this, you must have a good payment history and also keep the credit utilization ratio at or below 30%.
  • Paying down the debt is yet another way you might reduce the credit card interest rates. This shows banks that you can make regular payments. This also helps with the credit score, by lower the overall credit utilization ratio.
  • You can always ask your credit card issuer to lower your interest rate. This does not guarantee that the rate is lower, but it is worth trying. Even in case of rejection, you can try again in 3 to 6 months.
  • You can eliminate your interest payments by paying your credit card balance in full within the grace period. This usually ranges between 21 to 56 days after the purchase, depending on the credit card company.

The Benefits Of Low Interest Cards

If you tend to carry a balance on your card, 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 cover 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 percents, you can continue to pay the same amount, but you’ll be paying more off the card balance.

The broader implications 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 significant factor in calculating credit scores.

How to Get Lower Interest Rate on Credit Card?

When it comes to reducing your credit card interest, there are 3 main strategies you can take to make it happen:

1. Maintain A Good Credit Score

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

According to Experian data, the average credit score for United States residents was 714 across all age groups. In the table below you can see a breakdown per age:

 

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.

Don't Forget To Check And Dispute Credit Report Errors

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.

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2. 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.
lower your credit card interest rate
Negotiate with your credit card company to reduce card interest rate (Photo by HAKINMHAN/Shutterstock)

3. Pay Down Debt 

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%.

This chart created with Experian data shows that those with an average to good credit score have an average credit utilization ratio of the optimum 33%. This ratio drops significantly for those with very good and excellent scores.

At the other end of the scale, the chart shows that those with poor credit scores typically have a very high credit utilization ratio, with an average of 73%. This will be a massive factor in lending decisions for those in this group.

 

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 Can I Do?

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.

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.

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

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.

Card
0% Intro
Balance Transfer Fee

chase freedom unlimited card

Chase Freedom Unlimited®
15 months on purchases and balance transfers
$5 or 5%

American express everyday card review 2021

15 months on purchases
N/A

citi simplicity

Citi Simplicity® Card
12 months on purchases and 21 months on balance transfers
$5 or 5% (whichever is greater)

Wells Fargo active cash card

Wells Fargo Active Cash
15 months on purchases and qualifying balance transfers
$5 or 5% (the greater)

BankAmericard®

BankAmericard® credit card
21 billing cycles on purchases and balance transfers made within the first 60 days
3% or $10, whichever is greater

us bank visa platinum

U.S. Bank Visa® Platinum Card
20 billing cycles on purchases and balance transfers
$5 or 3% (the greater)

FAQs

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.

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.

Numerous cards are offering low rates, including those with a 0% introductory rate. If you’re looking for 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 your best choice.

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.

 

Review 0% Intro Balance Transfer Cards

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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