How to Lower Credit Card Interest Rate and Save Money
Lowering your credit card interest rate minimizes debt and makes it easier to start saving money.
Contributing Writer at Tally
October 7, 2022
When you open a credit card account with a lender, one of the terms you will see is the annual percentage rate (APR). The APR is the interest rate and fees you pay to the lender to borrow money. Credit card interest rates tend to be particularly high.
As a result, you may find yourself wondering whether you can secure a lower APR. A lower interest rate can reduce your long-term credit card debt, make repayment easier and allow you to start saving money.
Fortunately, it’s sometimes possible for cardholders to obtain a lower APR. Below, you’ll learn everything you need to know about how to lower your credit card interest rate.
Can you decrease the interest rate on a credit card?
Yes, it’s possible to decrease the interest rate on a credit card. Lowering your interest rate could improve your financial situation, as it will reduce your interest charges and potentially allow you to pay down debt more quickly.
How do you lower your interest rates?
You can lower your interest rates by negotiating with your lender for a rate reduction, by transferring your balance to another credit card or by securing a lower-interest line of credit to pay off your credit card balance. We’ll cover this in more detail in the next section.
Does asking for a lower interest rate affect your credit score?
In most cases, asking for a lower rate won’t affect your credit score. Your lender does not report your actual interest rate to the credit bureaus, meaning that it will not show up on your credit report.
However, your credit card company may perform a hard inquiry to determine if you’re eligible for a rate reduction. This hard inquiry could cause your score to temporarily decrease, typically by five points or less.
Additionally, your payment history will show up on your credit report. That’s why it’s important to pay your balance on time and in full each billing cycle. If you can’t pay in full, you should at least make the minimum required payment.
What is a good interest rate on a credit card?
A good interest rate on a credit card is typically around 16%. Credit card companies can change interest rates though, so this number may vary. The best credit card interest rates may be as low as 14%. Qualifying for the best rates typically requires a strong credit score.
How to lower your credit card interest rate
Getting a lower credit card interest rate is easier than you may think. Here’s how to make it happen.
Review your situation and check your interest rate
Before trying to get a lower interest rate, make sure that you need a lower rate in the first place. If you pay your credit card balance in full every month by the due date, your APR doesn't matter since you don’t accrue interest. Asking for a better rate may be unnecessary and more trouble than it's worth.
However, if you only make minimum payments or carry credit card debt from month to month, you’ll want to know what your APR is. You can find your interest rate on your monthly billing statement.
Also, review your spending habits. Did you have a one-time expense, such as an unexpected medical bill? Or have you been overspending and routinely making late monthly payments? Your credit history and spending habits strongly determine whether you're eligible for a better rate.
A good credit score (a FICO® Score of 670 or above) can help you secure a lower interest rate with your credit card company.
Research competing credit cards
Credit card companies want to keep you as a customer, even if you don't have excellent credit. These companies make money each time you use their card due to transaction fees (which are charged to businesses that accept credit card transactions) and interest fees (which are charged to you if the balance isn’t paid in full every month).
Taking the time to compare credit card rates gives you more leverage when negotiating a lower rate with your credit card issuer. Make sure that you compare cards that are similar to yours. If you find a similar card with a better rate, note the card name, bank name and terms. Your current company may be willing to match the competitor's card offer.
Call and ask for a lower rate
After doing your homework, it's time to call your credit card company and ask for a lower rate. This may be intimidating, but there’s no harm in asking. Seventy percent of cardholders who ask for a lower rate receive it.
You can find the customer service number on your monthly billing statement or the back of your credit card. When you reach a customer service representative, kindly explain the reason for your call. If you can, lay the groundwork for your request by outlining details that reflect positively on you, such as being a good customer for years who makes timely monthly payments.
If you have recently run into financial hardship, but otherwise have a strong payment history, you may want to mention this to the customer service representative.
If your request is denied, ask to speak to a supervisor. When you reach the supervisor, know the precise interest rate you want and present your case. This will demonstrate that you're knowledgeable and have done your homework.
You may not get your exact target number, but you could get close. If your current APR is 18% and you ask for 12%, the credit card issuer may meet you in the middle at 15%. Consider this a win, as shaving even just a couple of percentage points off your current rate can help save you money on interest charges.
Also, remember to be polite and put your negotiating skills to work. If you do your research beforehand and lay out a solid case, your credit card issuer will likely make reasonable efforts to work with you.
If you don't have success after the first call, don't feel defeated. It may take some persistence before your rate is lowered. Try making on-time payments for six consecutive months and then going back to your credit card issuer to make another request. Having a strong payment history typically goes a long way with lenders.
Use a balance transfer credit card
If your request for a lower interest rate is denied, you may want to consider opening a new credit card, specifically a balance transfer card. A balance transfer card lets you transfer your existing credit card balances onto a single low-interest (and sometimes no-interest) credit card. Keep in mind that you typically need a good credit score to obtain a balance transfer card.
The new card's introductory APR may be as low as 0% for the first 12 to 18 months. During this time, you can pay down your existing debt without accruing interest. However, after the intro APR expires, you could face high interest rates. So, make sure you can pay off as much credit card debt as possible during the introductory period.
There are balance transfer fees associated with these cards, typically ranging between 3% and 5% of the amount transferred. If you currently have a high APR, like 20%, the one-time transfer fee may be well worth the money you’ll save in interest.
For example, if you have a $10,000 balance on a credit card with a 20% APR and make just the minimum monthly payment of $266.67, it would take you 346 months to pay the balance in full, and the total amount of interest you would have paid in that time would be $16,056.59. If you're able to qualify for a 0% interest (for 12 months) balance transfer credit card, the balance transfer fee might be $300 to $500, which is far less than the interest you might pay without transferring the balance.
Even if you can't pay off the entire balance during the introductory period, any portion of the balance you can pay will reduce the amount of interest you'll pay over time. If you can afford to pay $500 per month, for example, by the end of the 12-month introductory period, you'll have a remaining balance due of $4,500. Let's assume the interest rate reverts back to 20% at that point, but you continue making the $500 monthly payment. You'll be on track to pay the balance in full in 10 months, paying $416.66 in interest during that time.
So, instead of paying $16,056.59 in total interest, you'd be paying a $500 balance transfer fee plus $416.66 in interest, for a total of $916.66, a savings of $15,139.93.
Consider a credit card payoff app
If the above options don’t work, focus on paying down your credit card debt and improving your credit score. One way to do so is with a credit card payoff app like Tally†.
Tally manages your credit cards for you and can help you save money with a lower-interest line of credit.
Lower your credit card interest rate today
Understanding how to lower credit card interest rates could have a significant impact on your personal finances. Considering about 70% of those who ask for a lower rate end up receiving it, there's no harm in trying to negotiate with your credit card company.
Before doing so, you’ll want to check your current interest rate as well as look up competitor interest rates so that you can support your case for a lower rate. If your credit card company initially denies your request, don't be afraid to keep trying. You can also consider alternative options, like a balance transfer card or line of credit.
Check out Tally’s credit card payoff app to help pay down your higher-interest credit card debt with a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.