How to help lower your credit card interest rate
If you’re looking for a lower interest rate on your credit card, you might have options. Find out how you may be able to get a lower credit interest rate and possibly avoid interest charges altogether.
What you’ll learn:
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Your credit card’s interest rate is the price you pay for borrowing money.
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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.
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There are a number of different ways you might be able to lower your credit card interest rate, including improving your credit scores and transferring your balance to a new issuer.
- You may be able to reduce or avoid credit card interest charges by paying off your entire balance by the due date each month.
3 ways to get a lower credit card interest rate
Interest is the price you pay for borrowing money. A credit card’s interest rate is generally stated as a yearly rate called an annual percentage rate (APR).
Paying off your balance each month is one way to avoid interest. If that’s not an option, there may be others:
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, here are a few steps you can take to monitor and improve your credit scores:
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Make on-time payments. Paying all your bills on time shows lenders you’re a responsible borrower. Setting up automatic payments or electronic reminders may help.
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Stay below your credit limit. Generally, using a lot of your available credit could be a red flag to lenders. Some experts recommend keeping your credit utilization ratio at 30% or less.
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Only apply for credit you need. Credit applications may result in hard inquiries, which may temporarily hurt your credit scores. Applying for a bunch of cards over a short period may also give lenders the impression that you’re dealing with financial setbacks, according to the Consumer Financial Protection Bureau (CFPB).
- Check 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. CreditWise from Capital One can help you keep an eye on your credit. It’s free to everyone—not just Capital One account holders—and using it won’t affect your credit score.
2. Shop around for the best offers
If you’re considering a new card, it’s important to consider all your options. You can compare Capital One credit cards to find one that’s right for you and see if you’re pre-approved before you apply. Pre-approval is quick and easy. And it won’t harm your credit scores because it only requires a soft credit inquiry.
3. Consider a credit card balance transfer
A balance transfer lets you move debt from one credit card to a new issuer.
Some cards offer promotional APRs that may apply to balance transfers, purchases or both. It’s not the same as lowering your interest rate permanently, but it can temporarily give you a lower rate. And you might be able to use that time to pay off your balance.
When the promotional APR period ends, the credit card’s APR will typically increase to the standard APR. And you’ll have to pay interest on any remaining balance, so it’s a good idea to make sure the standard APR on a balance transfer is lower than your current credit card’s rate. It’s also worth checking for any balance transfer fees.
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 may 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, 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 FAQ
Here are some frequently asked questions about lowering your credit card interest rate.
What do credit card companies consider when setting interest rates?
Every credit card 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 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.
Why is my APR so high when I have good credit?
Lenders typically consider credit scores, along with other financial factors, when making lending decisions. And having a higher score may help you get a lower interest rate.
But even if you have an excellent credit score, doing things such as making a late payment could trigger a higher, penalty APR. Paying on time, making at least the minimum payment and staying below your credit limit are a few ways to help avoid penalty APRs.
Key takeaways: How to help lower your credit card interest rate
A good credit history and credit scores may 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 compare credit cards or consider a credit card balance transfer. Explore Capital One balance transfer credit cards to see if one is right for you. 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 the calculator below. Just input a few pieces of information, including your current APR. You can then explore options for paying off your cards. You can even enter different APRs to see how a lower rate might affect things.
