How to Negotiate Lower Credit Card Interest Rates

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August 16, 2022

How to Negotiate Lower Credit Card Interest Rates

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Many credit card companies have raised their interest rates at least once, if not several, this year. These interest rate hikes are happening in response to the Federal Reserve raising the federal funds rate — an action that indirectly leads banks and lenders to raise interest rates. The Fed raised rates to help try to control staggering inflation. The federal fund rate has been raised three times this year, with another rate increase expected this month.

This means credit card interest rates may go up even higher in response and climb higher by the year's end. While it’s always best not to carry a credit card balance (when possible), if you do have a balance, the cost of borrowing just got more expensive.

You have several options if you’re worried about carrying a balance on your credit cards. You could transfer the balance to a balance transfer credit card with a 0% introductory APR that allows you to repay the balance via monthly payments without interest for a set period (anywhere from 12 to 24 months, depending on the card). You could also take out a debt consolidation loan, which may have a lower interest rate. Another option to consider is making a debt repayment plan and aiming to pay down your balance as quickly as possible.

In the meantime, one course of action you can take is to talk to your current credit card company about lowering your interest rate. This can help save cardholders money in interest (which could total hundreds of dollars depending on your rate and balance). Here’s what you need to know to ask for a rate decrease on your credit card.

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How credit card APR works

Your credit card balance will not accrue interest until you’ve missed a payment. Some credit cards offer a grace period (two weeks to 30 days where you can make a payment after the due date to avoid interest). If you still have a balance, interest in the form of APR (annual percentage rate) begins accruing, tacking onto your balance. (Note, your APR is your interest rate, plus any credit card provider fees).

Paying your balance in full each month is the best way to avoid paying interest. If you do this, interest will not accrue on your account, whether your APR is high or low.

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4 tips for lowering your credit card interest rate

1. Start with your oldest credit card or highest interest card

If you have a few credit cards, talking to the creditor you’ve had an account with the longest is a smart idea. You may be able to leverage your relationship as a loyal customer and card member to reduce your credit card APR.

To begin, you’ll call the credit card issuer (the customer service number can be found on your card, statement, or online account) and ask to talk to someone about reducing your rate. It helps if you make on-time payments regularly — your strong payment history may help convince the card company to reduce your interest rate.

Alternatively, you could start with the credit card with the highest interest rate. The strategy is the same. If applicable, you’ll call and ask for a rate reduction, reminding them of your past payment history, credit score, or good standing.

It’s also helpful to give the credit card issuer a reason for requesting a rate decrease. For instance, let them know if you just lost your job, suffered from a medical emergency, are bringing in less income, or have a new, unexpected expense.

Follow this process for every card, whether it holds a balance or not.

2. Let the card company know if you’ve received competitor offers with lower rates

Although credit card interest rates are rising, if you’ve received better rates from other credit card companies, let your current credit card provider know.

If they’re worried you’ll leave or transfer your balance to a balance transfer card, they may be more willing to work with you to lower your rate — especially if you’re a loyal customer.

3. Ask for a temporary reduction

If the credit card company tells you there’s nothing they can do or doesn’t agree right away, you can try asking for a temporary rate reduction for a set period — say 12 months (or whatever they’re willing to give you).

You can tell them if you’re planning to transfer your balance to a new credit card and tell them you’d like to keep your account with the company instead if they can temporarily lower your rate.

Even a few percentage points a month can help you save big in interest and make your debt management a little bit easier.

4. Try again in 3 to 6 months

A credit card issuer doesn’t have to agree to your request to lower your interest rate. But you can also call and ask again a few months later.

If you aren’t successful the first time, try calling back in three to six months to see if there’s anything more the company can do at that time. It may not work, but it’s worth trying if you want to save money on your credit card bills.

You can also threaten to cancel your card — just make sure you’re ready to lose the card if you do this. You can try this as a last resort, but canceling your card reduces your credit utilization rate (the amount of credit available to us versus how much you’ve used in credit), which can hurt your credit score. However, canceling a high-interest rate credit card that you’re tempted to use when you can’t afford to repay it could prevent you from getting into credit card debt in the first place.

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What if your credit card company won’t reduce your interest rate?

You can’t make a credit card company offer you a lower annual percentage rating (APR). But you can leave if you’re not satisfied. You can cancel your credit card once you’ve repaid your balance. Expect your credit to take a hit for a little while. You may also want to apply for a different, lower-rate credit card before canceling to improve the chances of your credit score leaving out.

If you don’t want to cancel your card and your credit card provider won’t lower your rate, what you do next depends on if you hold a balance. If you do, moving this balance to a lower rate balance transfer card (ideally a 0% intro APR card) can help you save interest while paying back the balance.

But, if you don’t have a balance and like your card, there’s not much you can do except try again in a few more months and be sure not to spend more than you can repay.

FAQs

What determines your credit card interest rate?

Many factors go into computing your credit card rate. First, credit card providers typically have a range of APRs, say 16.25% to 24.99%. This range varies from card to card but typically goes up when the Fed raises the federal funds rate and drops when the funds rate is lowered.

You should aim for an excellent credit score (mid to high 700s or above) to receive a lower APR. A good credit score (high 600s to low 700s) can also help you get a lower rate, though not quite as low. However, an average or bad credit score typically comes along with a higher APR. Credit card companies may also consider your payment history (if you have other accounts with them) and your annual income.

Why does having a lower credit card APR matter?

Even if you never carry over a balance, having a lower-rate credit card is a smart financial tool you can keep in your back pocket, just in case.

For instance, if you switch banks and forget to change your Autopay information for a credit card, you may miss a payment and APR will kick in. You could be charged a few dollars more interest if you have a higher APR.

And, if something were to happen to your employment and you could no longer pay your credit card bill, having a lower APR makes a big difference.

For example, if you hold a $2,000 credit card balance at 16.99% APR and pay $185 per month, it would take 12 months to pay off your card. During this time, you’d pay $155 in interest.

However, if you have the same balance at 26.99% APR and pay $185 per month, it would only take you one more month to repay the balance, but you’d pay $263 in interest — over $100 more than with a lower APR.

What’s a good interest rate on a credit card?

Although your specific credit card interest rate will depend on your financial profile (credit score, financial history, and income), looking at the national average credit card rate can help you find a percentage to aim for.

According to the first quarter of 2022, the average credit card APR was 16.17% in the Federal Reserve. For quarter two, it went up to 16.65% APR.

This means that if you have this rate or lower, it’s considered a good credit card rate. Of course, this will vary based on your credit score. The Bureau of Consumer Financial Protection’s 2021 Credit Card Market report shows that those with credit scores between 620 and 659 held an average APR of 19.1% on their credit cards. Those with scores between 580 and 619 had an average APR of 20.2%, and those with a 579 or lower had an average credit card APR of 21.1%.

These are just guidelines for determining if your credit card rate is “good” or not.

Do interest rates vary by credit card type?

In many cases, the type of credit card you own can determine if your APR is higher or lower, according to data from S&P Global. Credit cards with bigger perks like rewards or cash back credit cards tend to have higher APRs. Travel and airline credit cards, particularly those with high credit limits, which tend to offer the biggest rewards, often have the highest APRs. Platinum credit cards come next, followed by classic credit cards, which often do not provide rewards or an annual fee.

So, if you’re looking to earn rewards, you can expect your APR to be slightly higher. If you just want to build credit with a classic card, you can likely get approved for a slightly lower APR.

How much should I pay on my credit card each month?

Paying your credit cards in full each month is best to avoid interest. I recommend getting in the habit of only using credit when you know you can repay the balance. However, if you can’t pay the full amount, try to pay more than the minimum. This will help lessen the interest that adds to your balance.

At the very least, aim to make your minimum payment each month. Interest will still accrue, but you won’t face late payment fees, and your account will remain in good standing. That said, try to kick in some extra payments when you can. If your APR is high, paying the minimum could cost you hundreds to thousands in interest — depending on when you can repay your balance in full.

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The bottom line

Credit card APRs are rising across the industry. With inflation still high and the Fed poised to raise rates several times this year, negotiating a better APR on your credit cards could be helpful.

A lower APR can save you money in interest payments, making it easier to repay debt. Whether you have credit card balances or not, negotiating your APR with card providers is smart, so you have a low APR financial option if needed.

Your credit card company does not have to lower your APR and may not even agree to reduce your rate temporarily. In this case, you could consider transferring your balance to another card or asking again in a few months. As a last resort, consider a debt consolidation loan or credit counseling.

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Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.

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