How Can I Lower My Credit Card Interest Rate?

By Brandon Cornett
© 2011 All rights reserved

Reader question: "A couple of months ago, my bank raised the rate on my credit card. I don't know why they did this, because I've always made my payments on time. Anyway, I'm paying almost 20% right now. From what I have read, this is more than the average cardholder is paying. This doesn't seem fair to me, considering the fact that I'm always on top of my payments. How can I lower the interest rate on my credit card, or should I just switch to another company."

Yes, your rate is a bit higher than average. At the beginning of 2012, cardholders were paying an average interest rate of 15%, which is lower than what you are paying right now.

And yes, there are steps you can take to try and get a lower interest rate on your credit card. But "try" is the key word there. It doesn't always work. Later, I'll explain why the card companies often refuse to budge these days. But it's still worth a try.

2 Ways to Lower Your Credit Card Rate

When you get down to it, there are really only two ways to get a better rate:

1. You could negotiate with your current card issuer, to see if they're willing to give you a better deal.
2. You could transfer your balance to a new company, one that is willing to offer you a lower interest rate.

In this article, I'll focus on the first strategy listed above. You should always start with your current card company. It's much easier than transferring the balance. You have nothing to lose by trying. Here's how to go about...

Call the Company and Ask

When people email me and ask how to lower their credit card interest rates, I always start with the same advice. I tell them to pick up the phone and call the customer service number located on their card or statement. Ask the representative if there's anything they can do to lower your rate. "It can't be that easy," you might be saying. You are half right. It's easy to get the process started. But it's not always easy to get results. But you have nothing to lose by trying. This has worked for me on several occasions over the years.

Most companies have procedures in place for this sort of thing. For example, they might be willing to lower your credit card interest rate by 1.75%, as long as you've been making all of your payments on time. They can pull up your payment history with a few keystrokes on the computer (listen for the fingers clattering over the keyboard when you're speaking to the rep).

This is common practice actually. Here's how it usually works. The customers calls and asks for a better rate. The customer service representative (CSR) checks the person's account and finds that they've never missed a payment. The CSR says, "Okay, I can offer you an interest rate that's 1.5% below your current rate. But that's the best I can do."

Take that offer. Any reduction is better than no reduction at all. Then, about six months later, you could call back and try the same thing. There's less chance of it working a second time, unless you have significantly improved your credit score. But it never hurts to try. This should be your mantra by the way -- it never hurts to ask.

Just be sure to make all your payments on time. This will only help your cause. It will make you a more desirable customer, for one thing. They don't like to lose their most responsible customers. It will also keep your credit score up, which gives you even more negotiating power. We will talk more about this later.

Dealing With CSRs and Their Supervisors

There's a good chance the "frontline" CSR won't do anything for you. If they stonewall you, it's only because they've been trained to do so. Some card issuers take a hard line when customers ask for a lower credit card interest rate. They issue a flat "no" across the board. In these situations, the CSR you initially speak to probably won't budge. If that's the case, ask to speak with a supervisor. You shouldn't feel awkward about doing this. You are not insulting the CSR by asking for a supervisor. You're just showing them that you realize it's out of their hands.

I have a friend who used to work for one of the major credit card companies (you would know the name). She once told me how often customers asked to speak to with her supervisor. She said it was all in a day's work. She added that she was happy to get resolve the phone call any way she could, even if it meant giving the person a lower interest rate on the card. But she wasn't always in a position to offer a lower rate. In some cases, she had the authority to reduce the rate by a certain amount, if the customer had a history of making payments on time. In other cases, she had to issue a hard but polite "no," and elevate the call to her first-line supervisor.

She also shared something else I found revealing. She said the CSRs are typically trained to use a certain phrase when somebody asks to speak with a supervisor. Let's say someone calls and asks her for a lower rate on a credit card. My friend explains that she is unable to offer anything lower than what the customer already has. So the customer asks to speak with a supervisor. And then comes the magic phrase. She says, "My supervisor is going to tell you the exact same thing. Do you still want to speak to him?" Though not always true, this simple phrase is designed to reduce the number of "elevated" calls. If you figure 50% of the callers say no to this question, then that's a 50% reduction in elevated calls.

Why am I telling you this? Because there's a good chance you'll hear this phrase when you call to ask for a lower credit card interest rate. If they ask you this question, tell them you still want to speak to a supervisor. The supervisor may not be willing to lower your rate, but he probably has the authority to do it. So that's the person you want to be dealing with.

So now you've got the manager or supervisor on the line. What next? Explain your situation. Tell him / her you are trying to lower your credit card interest rate, either by negotiating the current agreement or switching to a new provider. The last thing they want is to lose a responsible customer, someone who makes payments on time. So there's a good chance the supervisor will do something the CSR was unable to do. It may only be a small reduction in the rate, like one percent. But anything is better than nothing. As a general rule, it's a good idea to call back six months later and ask them to lower the rate again (regardless of what they did the first time around). Remember, it never hurts to ask. So be sure to repeat this process at a later date. 

Improve Your Credit Score to Get a Better Interest Rate

You'll have an easier time negotiating a lower interest rate is you can improve your credit score. This is especially important if you plan to switch companies using a balance transfer. You'll likely qualify for a better rate on the new card if you can boost your score between now and then.  

The interest rate you receive on any new credit cards (going forward) will be largely based on your FICO score. And that score is based on data found within your credit reports. Negative entries, such as late payments and debt collections, can do serious damage to your score. Avoid these things at all costs. Pay your bills on time. Follow the advice given in this article. You'll have a better chance of getting a lower interest rate on credit cards if you can keep your score up.

You can also boost your score by reducing the amount you owe on your credit card(s). This lowers your "utilization ratio," which is one of the key factors used to determine your score.

New Laws Make Creditors Less Willing to Negotiate

If you fall behind on your payments by more than 60 days, your card issuer can actually increase the rate on your existing balance. This is allowed under the new credit card laws that took effect in February of 2010.

These laws also restrict the type and amount of fees banks can charge their customers. Banks and creditors make money in two ways -- interest and fees. So by limiting one of those revenue streams (the fees), these laws motivate the banks to increase the other revenue stream (the rates). Though the laws are meant to protect consumers, they inadvertently make it harder to negotiate a lower rate on your card. This is why the average interest rate on a credit card is higher today than before the law was passed (15.14% in January 2012, compared to 12.87% in January 2011).

Is a Balance Transfer in Order?

Lastly, you should consider switching to a different company. There may be a company out there who would love to have your business, and would offer you a lower interest rate as an incentive to switch. The balance transfer has long been a viable strategy for securing a lower rate. This is especially true if you have a good FICO score.

But before making the switch, you may want to give your current issuer a chance to keep your business. Call and tell them you are going to transfer your balance to another company, and is there anything they can do to compete with the lower credit card rate being offered by the other company. You might be surprised by what they offer. Or not. But it never hurts to ask. There's that phrase again!