Credit Sesame advises on how to ask for a lower interest rate on your credit card.
Higher interest rates and inflation mean consumers are using their credit cards more for everyday expenses, resulting in higher debt and credit card balances. The average credit card debt per borrower in the second quarter of 2002 was $5,270, a 9.4% increase from a year ago, according to TransUnion’s credit industry insights report.
The average credit card annual percentage rate, or APR, is just under 18%, which is an all-time record.
The best way to deal with high interest rates on credit cards is to pay off the balance each month. Interest isn’t charged if the entire balance is paid off by the bill’s due date, and late fees also won’t be charged if the monthly bill is paid on time.
If you carry a credit card balance and are paying a high interest rate, one way to lower your costs is to ask the creditor for a lower rate.
What determines your interest rate
Your credit history is the biggest factor in determining the interest rates you’re charged for loans and other types of credit. Generally, the higher your credit score, the lower your interest rate will be.
The average credit card APR was 16.65% in the second quarter of 2022, according to the Federal Reserve. An interest rate at that amount or lower is considered a good one.
A 2021 report by the Consumer Financial Protection Bureau on the credit card market found a poor credit score of 579 or lower had the highest rates on their credit cards, averaging 21.1%. Those with credit scores between 580 and 619 had an average APR of 20.2%, and those with scores between 620 and 659 had an average APR of 19.1%.
The type of credit card you have is another factor. Travel and airline cards with high limits and the best rewards typically charge higher interest rates.
How a lower APR can help
Find any online credit card calculator online and you can quickly figure out how much you’ll save with a lower interest rate.
Suppose you have a $5,000 credit card balance at 21% APR and you’re paying $200 per month. It would take two years and 10 months to pay off the balance, and the total interest paid is $1,632, or 25% of the total payment.
If the rate drops to 16.65% for the same balance, it would take three fewer months to pay off the balance, and the total interest paid is $1,182, dropping to 19% of the total payment. The savings is $450 in interest.
How to ask for a lower interest rate
The customer service number for your credit card company is listed on your card, statement and online account. Call and ask for a lower interest rate with these tips:
1. Explain why you need a lower interest rate
Be upfront and tell the credit card issuer why you’re asking for a rate decrease. There’s nothing in the credit card agreement that says the company has to lower your rate, so offering a reason may persuade them.
If you’ve just lost your job, faced a pay cut at work, had a medical emergency, or are facing an unexpected expense, it can help the customer service representative understand why you need this help immediately.
2. Start with the oldest, highest interest card
If you have more than one credit card, start by asking the creditor that you’ve had a card with the longest. If it has the highest balance among your credit cards, that’s better because you have the most to gain from a rate drop.
Loyal customers who pay their credit card bills on time for years, have high credit scores, and accounts in good standing that don’t require collections or other interventions may be given a lower interest rate because companies want to keep such customers. Remind them of how you’re a good customer.
Paying off your credit card balance in full each month is the best way to avoid interest charges. But if you can’t do that, and make the minimum payment or more, remind the company of that because your payments help it make a profit off of you.
3. Be ready to transfer your balance to a new card
Your request should have the implication that you’re going to switch your balance to another card soon (see below), unless the interest rate is lowered. If that implication isn’t understood and they initially deny your request, bring up the fact that you’ve received offers for better rates from other credit card companies. You should do this ONLY if you’ve received real offers from other companies, and can follow-up on this threat.
Avoid cancelling your card as this shortens the history of your credit accounts, and reduces your credit utilization rate — the amount of credit available versus how much you’re using. Both can lower your credit score.
4. Ask for temporary reduction in interest rate
A job loss or family emergency can be good reasons to ask for at least a temporary rate reduction, such as one year. The credit card company may offer you less time for the rate cut, which can still give you some time to cut your costs during a temporary financial problem.
5. Try again
If you’re denied today, then call back in a few months to see if the company can help you. Sometimes just getting a different customer service rep on the phone can make a change possible.
Balance transfer cards
If your card providers won’t lower your rate, you can shop around for a 0% balance transfer card. These are usually introductory interest rates of 0% that last for a year or so, and come with some fees to transfer a balance from your current card to the new card. The goal is to pay off the balance during the introductory period so you avoid interest charges.
The credit bureau Experian says that a FICO credit score of 670 or higher is needed to be approved for 0% interest credit card offers.
Your old card has zero balance after the transfer, now giving you the option to cancel the old card or keep it. Keeping it and only making a few purchases every month or so will benefit your credit history and can raise a credit score.
The last word
If you can’t afford to pay off your credit card balance every month, and high interest rates are making credit cards more expensive, then asking for a rate reduction can be a good way to save money.
Even if you do not currently have credit card balances, asking for a lower APR can help your budget in an emergency you start carrying a credit card balance.
You may also be interested in:
- Federal Agency Looks at Lowering Credit Card Fees for Late Payment
- Know Your Rights: How to Dispute a Credit Card Charge
Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.