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How to Negotiate a Lower APR

photo: BigBeaks

Ask and you shall receive. That used to be the case with lowering your credit-card interest rates not too long ago. Back in 2002, a survey by consumer advocacy group U.S. PIRG found that 56% of credit-card holders who had called their issuers to request a lower APR had gotten it done with a single phone call.

That’s hardly the case these days. Hit hard by the mortgage crisis and resulting credit crunch in the past few years, banks have been much more reluctant to cave into such requests.

That doesn’t mean it can’t be done. It simply means that you’ve got a lot more work to do before you make that call – and be aware of the risks associated with doing so.

The risks

The biggest risk of requesting a lower-APR request these days is that the bank may not only deny it – you could walk off that phone call with a lower credit limit. That’s been happening to quite a few consumers these days, says Gerri Detweiler, a consumer credit expert at Credit.com.

When you call your bank to discuss your credit card terms, you will trigger a deeper look into your account and credit history. Some issuers may even require you to submit additional paperwork like proof of income or tax returns in order to make a decision.  

If they don’t like what they see, nothing’s to stop them from taking adverse action, such as lowering your credit limit. That move will in most cases have a negative effect on your credit score, because a lower credit limit automatically increases your utilization ratio.

Unfair? Yes. But the fact is that the bank is in its full right to lower your credit limit – a move that is not prohibited by the new credit card law. (They are not allowed to hike your APR for no reason during the first 12 months after opening an account, though. After that, any interest-rate increases will only apply to future card charges and not to your existing balance.)

Doing your homework

Before you call your bank, you’ve got to be absolutely sure your credit and financials are in pristine condition. This way, even if the bank declines your request, you could actually fight back.

1. Check your credit.

How’s your credit doing these days? Is your credit score at least 740? Is your credit history in pristine condition: no late payments, no maxed-out accounts, no recent credit applications?

Before you call your credit-card company, pull your credit report to make sure it’s clean and has no erroneous information. You can order one free copy a year from each of the three credit bureaus through http://www.annualcreditreport.com/. Some people go as far as asking the credit issuer which bureau it uses so that they can pull their report from the bureau in question.

If you find errors on your report, dispute them with the credit bureau. (Each report contains information on the steps you need to take and you can dispute errors online or via regular mail.) Keep copies of all emails, calls or other communication for your records.

2. Gather up your paperwork

The card issuer may request that you supply additional paperwork in order to consider your request for a lower interest rate. Most likely, that will be information that isn’t included on a credit report, such as proof of employment and income. Be armed with copies of paystubs or even your latest tax return.

You may not have to use these, but if requested, you can only benefit from being able to provide them at a moment’s notice. If you are in a tough financial situation (you’ve recently lost your job, for example, or have taken a cut in pay), your issuer will likely not agree to reduce your APR. You may qualify for a so-called “hardship program,” but the trade-off is you’d have to close your account while you pay it off.

3. Have a back-up plan

Even if your credit is in pristine condition, the issuer may decline your request. In that case, it pays to be prepared: have at least one other credit card with enough available credit for you to make a balance transfer without maxing it out (remember, using as little of your available credit limits as possible helps your credit score). Faced with the threat of losing your business, the customer service rep may change his or her mind.

Don’t worry if the bank still doesn’t cave. There are other ways to deal with high-interest debt, including consolidating your balances through lower-rate loans. For more on that, read our story Five Ways to Consolidate High-Interest Debt.