How to lower your credit card interest rate
January 17, 2023 8 min read
If you’re looking for a lower interest rate on your credit card, you’re in luck: You might not be stuck with your existing rate forever.
But how can you get a lower credit card interest rate? What’s a typical rate? And what are the benefits of a lower rate?
Read on to learn the answers to these questions and more.
- Your credit card’s interest rate is the price you pay for borrowing money.
- The lower your interest rate, the less you might pay to borrow. And the better your credit history and scores, the lower your rate might be.
- There are a number of different ways you might be able to lower your credit card interest rate.
- There are even ways to reduce or avoid credit card interest charges altogether.
How does credit card APR work?
Before trying to lower your annual percentage rate (APR), it helps to know how credit card interest works. When it comes to credit cards, the Consumer Financial Protection Bureau (CFPB) says interest rates are typically expressed as a yearly rate. That’s the APR. It’s the price you pay to borrow money.
It’s also important to know that the way you use your card can affect your APR. For example, there may be different rates for standard purchases and cash advances. The rates for 0% APR cards are usually temporary. And missing credit card payments could lead to penalty APRs, which may be higher than the standard APR.
What do credit card companies consider when setting interest rates?
Every issuer sets its own credit card interest rates. And issuers usually determine rates based on two main factors:
- The prime rate. Most lenders set their own interest rates based on the prime rate. The prime rate is an index that’s closely tied to the federal funds rate—the rate banks charge each other for borrowing money. Lenders typically add a certain margin to the prime rate when setting their own credit card interest rates. If the prime rate is 3% and the bank’s margin is 12%, for example, the interest rate will be 15%.
- The cardholder’s credit. Generally, the better a person’s credit history and the higher their credit scores, the lower their interest rate might be. “The credit card company may decide which interest rate to charge you based on your application and your credit history,” the CFPB explains. “Credit card companies typically offer their best rates to customers who have the highest credit scores.”
What’s an average credit card interest rate?
The Federal Reserve regularly determines the national average credit card interest rate. And while there’s no industry standard for what’s considered to be a good APR for a credit card, the lower the APR, the better.
You can visit the Federal Reserve’s website to see the most up-to-date average.
Benefits of a lower credit card interest rate
Remember: The interest rate is the price you pay for borrowing money. That means the lower the interest rate, the less you might pay.
How to get a lower credit card interest rate
There are a number of different ways someone might be able to get a lower credit card interest rate:
1. Work on improving your credit scores
Having a good credit score may help you receive better offers for new credit cards with lower rates—among other things.
If your credit needs work, the CFPB says you can take steps to improve your credit scores by:
- Keeping an eye on your credit history. Scores are based on your credit history. Having a long history of responsible credit use over time may improve your credit scores. There’s no quick fix, but it’s good to keep in mind.
- Making on-time payments. Paying all your bills on time shows lenders you’re a responsible borrower. If you’re forgetful, consider setting up automatic payments or electronic reminders to help.
- Keeping your credit card balance low. Generally, using a lot of your credit could be a red flag to lenders. Some experts recommend keeping your credit utilization rate at 30% or less.
- Applying only for credit you need. Credit applications may result in hard inquiries, which may temporarily hurt your credit scores. And applying for a bunch of cards over a short period may also reflect poorly on your score because it may give the impression your financial circumstances have changed for the worse.
- Checking your credit reports. Incorrect information on your credit reports could hurt your scores. But by regularly monitoring your credit, you can learn to spot errors. A tool like CreditWise from Capital One can help. It’s free to everyone—not just Capital One account holders—and using it won’t affect your credit.
2. Ask your credit card company for a lower interest rate
If you’ve been building or rebuilding your credit, you could consider asking your credit card company for a lower interest rate.
Because your credit may have improved since you originally got your credit card, you might be eligible for a new and improved rate. And if you’ve received pre-approved or pre-qualified credit card offers, they can give you an idea of the rate you might want to ask for.
3. Shop around for the best offers
If you’re considering a new credit card, it’s important to compare cards and consider all your options.
Capital One, for example, has a credit card comparison tool that helps you see how different Capital One cards compare to one another. And with pre-approval from Capital One, you can find out if you’re eligible for some cards before you even apply. It’s quick and won’t hurt your credit scores since it only requires a soft credit inquiry.
4. Consider a credit card balance transfer
A balance transfer lets you move debt from one credit card to another. But how it works is up to individual issuers, and you may not be able to transfer balances between two cards from the same issuer.
When it comes to balance transfers, some credit cards offer promotional APRs. It’s not quite the same as lowering your interest rate permanently, but it can give you a lower rate for a temporary period. And you might be able to use that time to pay off your balance.
Just make sure you know when the promotional period ends. At that point, the credit card’s APR typically will increase to the standard APR. And you’ll have to pay interest on any remaining balance.
It’s also worth checking on any fees, which could eat into potential savings. And if you don’t qualify for a promotional rate, it’s a good idea to make sure the APR on a balance transfer is actually lower.
5. Keep an eye out for interest rate scams
When it comes to credit, there are no quick fixes. And the Federal Trade Commission (FTC) has warned of interest rate reduction scams that make those kinds of promises.
Here’s how these scams often work: A company calls saying it can negotiate with your issuer on your behalf, claiming they have a special relationship. It may offer money-back guarantees and say it’s a limited-time offer to get you to sign up.
But the company charges fees and requires you to supply personal information. Once it has your information, it can make purchases with your card or sell the information to others. The FTC says not to give out personal or financial information and to hang up if you get a call like this.
How to reduce or avoid credit card interest charges altogether
If you pay your balance off in full by the due date every month, you can avoid paying interest on new purchases. Even if you can’t pay off the entire balance, making more than the minimum payment can still help you reduce how much interest you pay.
One way to pay more than the minimum is to make multiple payments throughout your billing cycle—instead of waiting until you receive the bill. But check with your bank first to be sure that’s allowed—and that there are no fees or penalties for doing so. After you hit the minimum, those extra payments will help decrease your balance. And that can help you reduce how much interest is charged over time
How to lower your credit card interest rate in a nutshell
A good credit history and credit scores can help you get a lower interest rate.
If you’ve been improving your credit, it may be time to look for a lower rate. You could ask your issuer for a new and improved rate, compare different credit card offers or consider a credit card balance transfer. Just be sure to watch out for interest rate scams.
And remember: Paying off your bill in full every month might help you avoid interest charges altogether. To get an idea of how long it might take you to pay off your current credit cards, try using Capital One’s PayOff Estimator below. Just give the tool a few pieces of information, including your current APR. You can then explore options for paying off your cards—and even enter different APRs to see how a lower rate might affect things.