Does Accepting a Lower Rate From a Credit Card Affect Your Credit Score?

Credit card companies all impose interest charges on their accounts. There is no standard interest rate. Each bank sets its own rate, and some customers pay more or less for the same type of credit card, based on their credit score. Interest is sometimes negotiable, with banks lowering their rates for good customers who request better terms. Better interest rates sometimes have ripple effects on your credit score.

Scoring Factors

Your credit score comes from things like your available revolving credit lines, the amounts you owe on loans and credit cards, whether you make payments on time and if you have ever had issues with collection agencies, car repossessions and bad debt write-offs, the Federal Reserve Bank of San Francisco explains. Your credit card limits, balances and payment histories appear on your reports, but not your interest rates. Interest has no direct effect on your score, but indirectly it can help or hurt you by how it affects your overall finances.

Positive Effects

High interest rates cost you more money if you do not pay your credit cards in full during every billing cycle. Interest charges are assessed monthly, the Federal Reserve Bank of San Francisco advises, and only part of your payments goes to reduce your balance. The rest pays for the interest. More of your funds go toward lowering your principal if your bank lowers your credit credit card interest rate. Less debt means a better score, so your credit rating improves as your balances go down more quickly.

Process

Banks do not voluntarily lower interest rates, but many respond to requests by good customers. You may qualify if you are a long-term credit card customer who rarely or never pays the account late. Call the toll-free number on the back of your card, get connected to a live agent, and ask for lower interest, Bankrate writer Lucy Lazarony recommends. Mention your good history and any competing offers you have received in the mail or noticed online. Call again a few weeks later if the agent does not give you a better rate.

Considerations

Your current credit card issuer might not lower your rate, but you might get better offers from competitors. Accepting a new account with a lower rate initially drops your score a bit because of the inquiry on your credit reports. The MyFICO scoring website advises that your score drops by five points or less for a credit check. Your score then rebounds because you have more available credit compared to what you owe. Transfer your existing balance to the new, lower interest card and leave the old account open to maintain that ratio.