Credit is tight, all right. New Federal Trade Commission (FTC) rules on credit card interest rates, along with other changes in financial oversight laws and regulations, have led to a further tightening of consumer credit, with rate increases accompanied by credit line reductions.
How can you get a lower credit card interest rate in a time like this? Who qualifies and why? It turns out that four important steps are required to begin your own, personal credit card debt relief program. You can always get professional assistance down the road if you need it, but there is no reason not to try to lower your interest rates yourself.
Building Your Case for Lower Credit Card Interest Rates
1. Know Where You Stand
Whether you are working on credit card consolidation or not, it is always a good idea to know what you are paying for credit. If you don’t know what your credit card interest rates are, consult your current monthly statements for the Annualized Percentage Rate (APR). If you cannot locate it, call your credit card issuers and ask.
You also need to know your credit score. Despite having popular commercials, “free credit report” firms require you to sign up for “credit alert” programs or other services in order to get your reports. As a result of the Fair and Accurate Credit Transactions (FACT) Act of 2003, credit reporting firms Equifax, TransUnion and Experian created a website, AnnualCreditReport.com, where consumers can get a free annual copy of each company’s report, no strings attached. Use that instead.
2. Know Where Creditors Stand
Next do some online research and find out what your various creditors are offering other customers, particularly new ones, with comparable credit scores and profiles. You may find one of your creditors offering a new account with no interest for six months. Take a look at the fine print. The stated requirements vis-à-vis credit scores, income, etc. will help you understand how your creditors view you.
At this point, you should visit a site like CardTrak.com and find out the latest credit card rate offers. There are five tiers of interest rates (data taken from CardTrak.com in March 2011, citing figures from late 2010):
- Super Prime rate, for consumers with credit scores of 760-850, is 10.59%
- Prime rate, for consumers with credit scores of 660-759, is 15.44%
- Sub-Prime rate, for consumers with credit scores of 500-659, is 26.01%
- Punitive rate, for consumers with credit scores under 500, is 29.99%
- Promotional rate, for new customers, 0% to 5.77%
How much can you save with lower credit card interest rates? To pay off a $10,000 balance at 9% with a 2.5% minimum payment would cost $14,192. Paying it off at 29% with the same minimum payment adds up to a staggering $85,547. Clearly, it is vital to calculate credit card interest on your accounts to get a clear picture of how much lower rates will save you.
3. Verify You Are in the Proper Credit Card Interest Tier
With your credit score, your complete accounting of your credit card interest rates and the rest of the information you just acquired, you can determine if your various creditors have you in the right tier. Although lenders use computers and sophisticated software to calculate people’s rates and credit lines, these processes are by no means perfect – and credit card interest rates are lowered every day of the year by human beings at the other end of a phone line.
4. Call the Credit Card Companies
Bring up the subject of the call immediately. It may be that you will get a canned response of the “we don’t do that” variety. Ask for the operator’s name and/or ID number, then request a transfer to a supervisor. Do not accept the excuse that “no one is available” – supervisors are always available. If you are not transferred, keep calling back until you are.
You must demonstrate that you have done your homework. Compare your account profile – interest rate, credit line and account history – to other accounts you have with lower interest. Mention the deals or rates your credit score would get you if you were to open a new account. Sometimes you may be able to transfer an existing balance to a new account with a no-interest introductory period. Ask about this. In fact, ask about anything and everything that you learned in the steps leading up to the call. Press your case.
Last Options for Lowering Credit Card Interest Rates
A last option, if it’s necessary in your case, may be to ask about a creditor’s hardship plans. These fall into two main categories – “forbearance plans” and “debt management plans” – and both can result in credit card interest removal for a short period of time. You will likely be reported to the credit bureaus should you enter one of these hardship plans, which can damage your credit score, and you may lose charging privileges.