Credit card companies, when evaluating the credit risk associated with a particular consumer, the three most important factors to determine the interest rate you will be eligible for.
- Your payment history, with particular emphasis on your recent history
- How much of your credit lines you are using
- How much credit card and other debt you have outstanding
Of the three everyone knows that payment history is important, but what most people aren't aware is of is how significant what proportion of your credit line you are using is. The reason is pretty clear: someone who is using a lot of their credit has a higher probability of being a compulsive spender or without substantial income and in need of credit to get by. Needless to say, ff any of these three parts is not up to snuff you will most likely not be eligible for a credit card with the best rates.
How Credit Card Interest Is Calculated
The most common method credit card companies use is to calculate your average daily balance and then apply the APR to the average figure to determine exactly the amount of interest you owe. In other cases your credit card balance will be computed through the adjusted-balance method or in rare cases, using the previous balance approach. Using the adjusted balance approach, a creditor will calculate your balance by subtracting payments made or credits given during the billing period from the total amount you owed as of the start of the billing period. The previous balance method is the opposite: any payments you make during the bill period are not subtracted from the total amount you owed at the start of the billing period.
How To Negotiate Interest Rates
You have two options to reduce your interest rate: 1) is to employ the services of a debt management provider, who will either be able to get your interest lowered or in other cases get your balance reduced; or 2) to call the credit card companies yourself and see what you can do. To get matched directly with a debt management service simply fill out a form and PayingPaul.Com can put you in touch for free advice. If you prefer to try negotiating with the creditors yourself, you are not alone. A study in 2002 by the US Public Interest Group showed that more than 50% of consumers who called their creditors and asked for a lower rate were given one.
Knowing what to say is a whole other issue. The main points to reiterate throughout your conversation are a) you are a good customer (obviously your payment history will have to show this), you are dissatisfied with your current interest rate, and if they do not acquiesce, you will close your account and transfer your balance to another card. Normally this will do the trick, but it is also important to remember that you should not give up after just one attempt. If the creditor refuses, call back again and try talking to someone else. When it comes to credit cards, the old saying "It's all about who you know" should be changed to "It's all about who you talk to."
Interest Rate Questions
What is the maximum credit card interest rate legally?
Usury laws generally do apply to credit card companies because they are headquartered in states that have no caps or limits in terms of what interest is allowable. These states are usually South Dakota and Delaware, but also include states like North Carolina, Illinois, and Nevada. Before 1978 this was not allowed, but thanks to a monumental Supreme Court case, Marquette Vs First Omaha Services, nationally chartered banks are allowed to "export" high interest rates to states that have restrictions on such practices.
What is compounded interest?
It is the method of adding accumulating interest onto the principal so that interest can be earned on interest. Credit card balances compound daily, so you will pay interest charges even more.
Need help managing your credit cards? Let PayingPaul.Com help. Fill out a form for a free consultation.