No likes to pay more for something that can be acquired at a lower price. This is especially true of credit card interest rates. No one should be paying rates that are exorbitant or higher than the average U.S. credit card interest rates. There are many ways to get your credit card rates reduced before you get a credit card and for your existing credit cards. There are even ways to get lower rates if your credit card company won’t reduce your rates.
The best rates are found through researching all of the credit card options available, so use the FREE credit card finder first!
Credit card interest rates are set based on a customer’s risk of nonpayment or defaulting on the account. Credit card companies and banks use your credit history and credit score to assess your risk. Those with a high credit score are deemed a low risk and given the lowest interest rates. Conversely, those with poor credit scores have the highest interest rates to offset their high risk.
How Not to Get Credit Card Rates Reduced
Firstly, many consumers engage in credit card hopping. They constantly transfer the balance of one credit card to another card with a lower interest rate. While this action can result in short term gains, it usually costs more in the long run.
Credit card companies are betting that customers won’t be able to pay off that transferred balance by the time a low interest introductory rate is over, and that is why they offer them in the first place. If teaser rates and zero balance transfer rates weren’t profitable for credit card companies, they wouldn’t offer them. This activity will only cost you more in the long run, so don’t get into the cycle of transferring one card’s balance to another.
What to do Before Getting a Credit Card
The first thing you need to do to get the lowest interest rates is to check your credit score and credit history. Every U.S. citizen is entitled to a free credit report from each of the three major credit-reporting bureaus, Experian, Equifax, and TransUnion every 12 months.
After you get you report and score, go over it with a fine-tooth comb. Dispute any items that you feel are incorrect, and pay off any accounts that you are responsible for. A high credit score shows that you honor your debts and pay on time; this is what lenders are looking for.
If you want a low interest rate, you have to show the credit card companies that you are a low risk.
Furthermore, you will also need other types of credit to have a great credit score. Mortgages, auto loans, personal loans and other installment payments set a history of on time bill payments. If you don’t have any other type of credit, such as a store credit card, you might want to consider a secured credit card until your credit score is improved.
How to Reduce Interest Rates on Your Current Credit Cards
Fox Business reported that the average U.S. credit card rate for February 2012 was 16.99%, so you want to aim for a rate that is lower than average. If you already have a credit card, and you want a lower rate, there are a few things you need to do, no matter what. The first is to keep your balance as low as possible.
The reasoning for this is two-fold: a higher balance hurts your credit score and it shows lenders that you are not managing your finances well. If you have a high balance, pay it down as soon as possible. The interest on your credit card is likely to be higher than any interest your money might be earning in a savings account or other money-market account.
Second, pay on time! Credit card companies charge penalty interest rates that can be as high as 29.99% if you miss just one payment. Set up reminders or automatic payments if you know you might forget. Many credit card companies will not reduce penalty interest rates once they are in effect. That late payment also probably lowered your credit score.
Lastly, monitor your credit score to ensure that it is as high as possible. After you pay your balance down, have many months of on-time payments and know that your credit score is in the good to excellent range, call your credit card company. Explain all of the actions you have taken to better manage your money, and then ask for a lower interest rate. Some credit card companies will lower a penalty rate back to the original rate if it is your first late payment and you have had excellent on-time payments since.
What to Do if You Can’t Get a Lower Rate
Even if your credit card company won’t lower your rate, there are still some actions you can take. You may be tempted to cancel your card in a show of protest, but that is not the smartest course of action. Instead, pay down your balance until it is zero. Don’t cancel the card, because that will hurt your credit score as it lowers your overall available credit. Then, don’t use that card. The credit card company makes no money, and you have made your point.
Pay off your monthly balance every month during your grace period; the credit card companies can’t charge interest if you don’t have a balance when your bill is due.
While you are paying down the balance of the first card, find another card with a better rate. This will be your new credit card with a low interest rate. Of course, it is understood that you will keep a low balance and make on-time payments to keep that rate low.
You can find the lowest interest rates by researching credit cards now with the FREE credit card chaser tool!