reduce credit card interest rate

Shop for Credit Card Savings

Smart consumers compare shop for credit, whether they're looking for a mortgage, an auto loan, or a credit card. When you're looking for a credit card, be sure to consider the costs and terms. They can make a difference in how much you pay for the privilege of borrowing. Compare them with the costs and terms of the cards you already have to find the plan that best fits your spending and repayment habits.

Key costs and terms to consider are the annual percentage rate (APR) for goods and services as well as for cash advances, the annual fee, and the grace period. Also compare cash-advance fees, late-payment charges, and over-the-limit fees.

Besides looking at these costs and terms, think about your typical billpaying behavior. Do you pay your outstanding balance in full each month? Or do you usually carry over a balance? Matching the credit card plan to your needs could save money.

Credit Card Interest Rates

Credit card issuers offer variable-rate, fixed-rate, and tiered-rate plans. For variable-rate credit card plans, the interest rate is calculated according to a formula. Three of the most commonly used formulas are

Index + Margin = Variable rate
Index x Multiple = Variable rate
(Index + Margin) x Multiple = Variable rate

The most common indexes used by credit card issuers are the prime rate; the one-, three- and six-month Treasury bill rates; the federal funds rate; and the Federal Reserve discount rate. Most of the indexes are published in the money or business section of major newspapers. If the index rate used for your credit card changes, the rate on your card will, too.

Credit Card Interest Rate Margin

The margin is a number of percentage points chosen by the credit card issuer. The card issuer also chooses the multiple.

The interest rate on a fixed-rate credit card plan, though not explicitly tied to changes in another interest rate, also can change over time. The card issuer must notify you before the "fixed" interest rate is changed.

A tiered interest rate means that different rates apply to different levels of the outstanding balance (for example, 16% on balances of $1–$500; 17% on balances above $500).

Some card issuers may have a policy that raises your interest rate if you make late payments. For example, if you make 2 late payments within 6 months, the card issuer may raise your interest rate from 18% APR to 24% APR. If such a penalty rate applies to your card, the issuer must include a notice in the solicitation materials.