Carrying a credit card balance has rarely been cheap, but those borrowing costs are even higher than normal right now, meaning a lot of borrowers are dealing with hefty interest charges on their revolving balances. Case in point? The average credit card interest rate is now 22.15%, and millions of borrowers are carrying credit card debt with rates that are much higher than the average. As a result, credit card debt that once felt manageable can become increasingly difficult to handle from one month to the next.
And while borrowers may be hoping for a reprieve, there isn’t much certainty about where borrowing costs go from here. The Federal Reserve’s next meeting is scheduled for September 15 and 16, and policymakers are weighing lingering inflation pressures and other hurdles as they determine their next rate move. One thing is for certain, though: The Fed is unlikely to lower its benchmark rate in September, and the central bank could even increase it to counter inflation. If that happens, it could drive up borrowing costs even further.
In turn, it’s important to try to keep your credit card interest charges in check right now. One way to do that is to secure a lower card rate, but if you take this approach, the potential savings aren’t the only factor to weigh. It’s also important to consider the negative impact that certain rate-lowering strategies could have on your credit. But are there ways to lower your card rates without damaging your credit score? That’s what we’ll examine below.
Learn how to resolve your high-rate debt here.
Can you lower your credit card interest rate without hurting your credit score?
There are several ways to potentially lower the interest rate on your credit card debt. However, some approaches are less likely to affect your credit than others, so if you plan to take this route, there are a few credit-sparing strategies to consider:
Ask your card issuer for a lower rate
One of the simplest options for lowering your card rate is to contact your credit card company and request a lower APR. There’s no guarantee the issuer will agree to do so, but you typically have more leverage if you’ve consistently made on-time payments, have a long history with the company or have improved your credit profile since opening the account.
Just asking for a lower rate generally won’t hurt your credit score. Before agreeing to anything, though, ask whether the card issuer needs to perform a hard credit inquiry to evaluate your request. A hard inquiry can temporarily lower your score by a few points, so if your goal is to keep your score completely unscathed, you’ll want to avoid that type of inquiry.
Explore the debt relief options you could qualify for here.
Enroll in a credit card hardship program
If you’re struggling to keep up with your payments because of a financial setback, your card issuer may offer you access to a hardship program. Depending on the issuer and your situation, these programs can temporarily reduce your interest rate, lower your monthly payment or waive certain fees.
Enrolling in a hardship program doesn’t inherently cause your credit score to drop, and it could be a simple way to get a lower card rate. However, the card issuer may close or restrict your account as part of the arrangement, which could affect your credit utilization ratio and, in turn, your score. In turn, it’s important to ask exactly how the program will change your account before enrolling.
Use a balance transfer credit card
A balance transfer can move your existing debt to a new card offering a low or 0% introductory APR, potentially giving you a year or longer to pay down the balance while minimizing interest charges. The tradeoff is that applying for the new card will typically result in a hard inquiry, which may cause a small, but temporary, credit score decline. Opening a new account also changes factors such as the average age of your credit accounts.
Still, that temporary drop doesn’t last long, and if you use the introductory period to substantially reduce your balance, the longer-term credit impact could actually be positive. After all, lowering your revolving balances can improve your credit utilization ratio, which could, in turn, push up your credit score.
Consider a debt management program
A credit counseling agency may be able to enroll you in a debt management program and negotiate lower interest rates or waived fees with your creditors. Rather than making separate credit card payments each month, you would make one monthly payment to the counseling agency instead, which distributes the money to your creditors. Participating in a debt management program won’t directly impact your credit score.
However, participating creditors may require you to close the credit card accounts included in the plan, which can reduce your available credit and affect your utilization, potentially causing your score to decline in the short term. The upside is that a lower rate and structured repayment plan could make it easier to pay your balances down consistently over time, helping to improve your score.
The bottom line
You don’t necessarily have to choose between lowering your credit card interest costs and protecting your credit score. Options such as negotiating directly with your issuer may have little to no credit impact, while hardship programs and debt management plans can provide relief without requiring you to take out new debt. Balance transfers may cause a temporary dip, but that impact should be weighed against the potential savings and the opportunity to pay down your balances faster.
Before choosing a strategy, find out exactly how it will affect your existing accounts and whether a hard inquiry is required. The lowest interest rate isn’t necessarily the best option if the terms create other financial challenges, so compare both the immediate credit impact and the longer-term cost of getting the debt paid off.
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