Is your credit card interest rate causing you financial pain? As of April 2020, the average annual percentage rate (APR) across all credit cards is 16.12%. Low-interest rate cards average 12.95% – a huge improvement when you're struggling with debt.
If your card's APR doesn't measure up, how do you get a low-interest rate credit card?
1. Improve Your Credit Score – Is your credit score the same or worse than when you received your card? If so, your card issuer probably sees you as just as high a risk as ever. Why would they lower your rate?
"The best way to get your interest rate lower is to raise that credit score," agrees financial educator and author Tiffany "The Budgetnista" Aliche. "If you have a higher credit score that means you are more likely to pay back. And if you are more likely to pay back, they are more likely to lower your interest rate. If you are not likely to pay back, people want their money upfront."
Check your credit score and your credit report for any errors or signs of fraud that are dragging down your score. If you truly deserve a poorer score, changes are necessary to get that low-APR card. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Make all payments on time and adjust your budget to pay down debt. Use as little of your available credit as possible and avoid applying for other loans and credit until your score improves. Monitor your credit score to stay on track.
2. Shop Around – Other credit card issuers may assess your risk differently. Shop around for alternate offers, including credit unions and smaller banks. They may be more willing to work with you if your credit score is marginal. If you've improved your score already, you're more likely to receive better offers.
Include balance transfer cards in your search when you have an existing debt to transfer. With a 0% introductory APR period, you can pay down existing debt interest-free and improve your credit score in the process.
3. Just Ask – Why would a credit card company lower your APR if you're content with what you have? Contact the customer service group at your card issuer and ask if you can receive a lower rate. If you've been a good customer with a solid repayment record, they may accept your request.
Combine these three ways for an even greater effect. If you've shopped around for competing offers – especially if you've improved your credit score – you have a powerful argument to convince your current card issuer to give you a better APR. If not, so what? You've got better offers already. You're negotiating from a position of strength.
If you get a lower APR card, congratulations! Keep up the good financial work that earned you that card – especially when it comes to on-time payments. That's the most important variable in calculating your credit score and keeping a low APR.
If you miss a payment, your card issuer may impose a penalty APR nearing 30% and temporarily revoke your grace period (meaning that interest charges accrue from the moment of purchase instead of the end of the billing cycle).
Penalty APRs are always painful, but they can be devastating for low APR cards. To see the difference, use an online credit card interest calculator to calculate the interest charges on a $1,000 balance paid over a year's time at 15% interest. Now double the rate to 30% and note the difference. Ouch.
A low-interest rate credit card is a great way to reduce interest charges that threaten your savings. However, there's an even better way to defeat interest charges – never carry a balance.
If you spend less than you make and always pay off all credit card statements in full each month, it doesn't matter whether your APR is 17% or 17,000%. You can choose your card based on rewards and perks instead of APRs while building up retirement and emergency funds with the savings.
If you want more credit, check out our list of low-interest credit card offers.