credit cards

Should you ask for a lower rate?

It used to be good advice to call your issuer every six months or so to ask for a lower interest rate. This tactic earned lower APRs on credit cards for many people. A November 2006 survey from Synergistics Research Corp. found that about 78 percent of people who had requested a lower rate received one as a result. Around 11 percent were denied a reduction, and then closed their accounts.

That was before the recession hit home. Before issuers began targeting millions of accounts for credit limit reductions, closure, interest rate hikes or other negative changes. Banks have tightened their grip on credit card risk in an effort to stem the flow of delinquencies and charge-offs, or loans written off as uncollectible. The average charge-off rate reached 7.1 percent in January 2009, up from 4.6 percent the previous year, according to Bloomberg.

These days, asking for a lower rate and threatening to close your account may not be so smart. They're more likely to shoot you down, or even make a negative adjustment to the terms of your agreement. If you follow through and cancel the card, your credit score could suffer.

Your request constitutes an application for credit, and the issuer can pull your credit report and score and ask for supplementary data, such as your job position and salary. "They may make an adverse change to your account because of what they see on your credit report or something that you've told them," says John Ulzheimer, president of consumer education at Credit.com and a CNBC contributor.

Making the call because you can barely meet the minimum is a different story. If that sounds like your situation, figure out how much you can afford to pay each month and then ask your issuer about putting you on a hardship plan. Programs vary from bank to bank, but can include repayment plans, temporary interest rate reduction or debt settlement. If you need to negotiate several accounts, try working with a credit counselor. You can find one through Debtadvice.org or Aiccca.org, which provide a directory of nonprofit credit counseling agencies.

"If you can continue to make your payments comfortably and you just want a lower rate because you feel like you deserve a lower rate, I'd keep that phone call on the back burner for right now," Ulzheimer says.

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