Editorial Policy

APR Too High? 3 Steps to Negotiate a Lower Credit Card Interest Rate

default author image

By Eva Norlyk Smith, Ph.D.
August 27, 2010

Over the past year, many Americans have seen their credit card interest rates tick upward as card issuers raised interest rates in advance of the implementation of the new Credit CARD Act. Some consumers report that their credit card APRs have jumped by as much as 10 percent; even consumers with a perfect payment history have not been spared.

Few things are as frustrating—and expensive—as being saddled with high-interest credit card debt. If this is a problem for you, take heart. There is much you can do to lower your interest rate, either by calling your card issuer to negotiate a lower rate and/or looking into transferring balances elsewhere. In either case, here are the steps to take to ensure the greatest success.

Step #1: Check Your Credit Score
When it comes to finding the key to the Credit Card Kingdom, your credit score is it. Card issuers stand by to roll out the red carpet for anyone with a great credit score. Consumers with low credit scores, however, will knock on the door in vain.

While all consumers are entitled to a free copy of their credit report once a year, getting a copy of FICO scores online typically cost around $7.95. However, for a quick check, use a free FICO score estimator, which in most cases will be sufficient.

Anyone with a FICO score above 750 will typically be able to get the best rates on their existing card or a new credit card. Even with a score above 680, chances of lowering rates are good, particularly if your payment history is excellent (see below).

People with credit scores lower than 680 might want to take steps to improve their credit score before attempting to lower credit card interest rates. Increasing credit scores can be done surprisingly quickly, as long as there are no major blemishes in your credit history. According to a study by the credit rating bureau Experian, 30 percent of U.S. consumers seeking to improve their credit score saw a 50-point increase in as little as six months.

Step #2: Check Your Payment History
The first thing card issuers look at when cardholders request a lower credit card APR is the person’s payment history. In order of severity (from low to high), here are some of the things to avoid to create a perfect payment history in card issuers’ eyes.
• Timing of payments. Avoid paying credit card bills at the last minute.
• Amount of payment. Don’t pay just the minimum due. If this has been your typical payment pattern, pay as much as you can on the account for 3-6 months before calling the issuer to negotiate a lower rate. For best results, pay down the balance each month to less than 30 percent of the credit limit on the card.
• Late payments. If you have one late payment within the last few months, call your card issuer and explain why it happened, and make sure they put a note in the account record. (Of course, this only works if it was a simple oversight; if the problem was that you didn’t have the money, don’t call, as you don’t want this on the account record!)
If you have more than one late payment, pay the account on time for at least six months, before attempting to call the card issuer to negotiate a lower rate.
• Missed payments. Missed payments will not only ruin the chances of negotiating a lower rate, they also torpedo one’s credit score. If you have a missed payment in your recent payment history, call your card issuer and ask which steps you can take to make the payment and get the mark removed from your credit report.

Step #3. Call to Negotiate a Lower Interest Rate
Once steps 1 and 2 are completed, it’s time to call your credit card issuer to negotiate a lower interest rate. Explain that you’re looking into ways to lower the interest on your credit card, and are considering transferring the balance to a low interest credit card. However, you’d prefer not to change card issuer, and want to see what lower rate they might be able to offer.

It’s expensive for card issuers to acquire a new customer, and they will often go to great length to keep cardholders that are good customers. According to surveys, more than half of consumers who call their credit card issuer to request a lower APR got their interest rates decreased, on average by one third. For best results, here are some more tips for how to negotiate a lower credit card interest rate with credit card companies.

If you still don’t get the rate you want, look into applying for a low interest credit card or credit union credit card, which typically feature lower interest rates; then transfer the balance to your new card(s). The preparation you did in steps 1 and 2 will help enhance the chances of success in this as well.