Getting a lower rate on a credit card seems like a no-brainer. After all, with a lower rate, you will spend less of your hard-earned money on interest. What could go wrong? Maybe not that much, but let’s dive in and see what the ramifications could be if you try.
Does asking for a lower rate trigger a hard pull?
Ah, this is the big question! Unfortunately, I don’t have a hard-and-fast answer for you. All I can tell you is: maybe it will and maybe it won’t.
Here’s what makes the difference. If the creditor treats the request as a mere request, the chances are that a soft inquiry, or even no inquiry at all, will be sufficient. However, if the lender considers your request as an account change (like asking for a credit limit increase or another one of the bank’s cards that comes with a lower interest rate), then a hard inquiry is likely. It depends on the creditor, what its rules are and what kind of relationship you have with it.
My suggestion is to ask your creditor if requesting a rate decrease will mean a hard pull. As we have discussed before, there are two types of inquiries—hard and soft pulls. An example of a soft pull is when you obtain your credit report for yourself. Preapproved offers for credit are generated through a soft pull, but if you decide to take the offer, your credit will be subject to a hard pull. Asking for a rate decrease might only mean a soft pull or no pull at all, which would not affect your score.
I contacted Capital One, Discover and Citi to see how they handle such requests and the representatives all told me they don’t pull a credit report if a customer asks for a rate reduction.
How does a hard pull affect your credit score?
A hard pull most often happens when you ask for more credit, and the assumption is that you are preparing to take on additional debt. In the case of asking for a decrease in your interest on your credit card, though, you are not asking for more credit.
In fact, depending on the rate you have to begin with and the balance on the card, I would say that you probably are not looking to add to your debt. But I could be wrong, and you could be wrong as well. Your intention may well not be to do that, but once you have a lower APR, you might be more inclined to carry more on the card than you did before. These are all hypotheticals, but your creditor will likely have thought of all of this, too. As I said, each creditor has its own rules that the customer may or may not be privy to.
If you are concerned about a hard pull, you should ask the creditor before making a request. Once you know, you can make your decision. I do need to tell you that in the event of a hard pull, the decrease to your credit score will probably not be that significant and will last for only a few months at the most. Unless you have a major purchase planned soon (like buying a house), any impact will be small.
One word of caution: if you have a short credit history or what is known as a “thin file,” an inquiry may be more serious. If you have a limited history or a low score, a few points can affect a lender’s decision more than it would for a person with a high score and lengthy history.
Can a lower card APR help your score in any way?
The interest rate charged is not a scoring factor; however, a lower rate could indirectly help your score. As I said initially, a lower credit card APR will allow you to put more of your payment toward the principal balance on the card. As your principal is paid down, your available credit will increase. This will be a boost to the utilization portion of your score. So, if you are successful, you can quickly overcome the hit you took from the hard pull (if one was done). Paying less for the money you borrow makes good financial sense.
How to avoid paying credit card interest
There are ways to avoid paying credit card interest altogether. If you only charge an amount that you know you can pay off by the due date, you will not incur any interest charges.
For instance, your household budget should have an amount set aside for groceries. If you use your credit card to buy your groceries, the money will be available from your monthly budget to pay the bill in full. Again, you have to be careful to pay the bill by the due date. For an even greater impact on your score, try to pay the account in full before the next billing cycle. This will yield the lowest credit utilization ratio.
This tactic works especially well with rewards cards. If you end up paying interest on charges, you could very well spend more than the rewards’ value. So, paying this card off each month is a win-win, both in terms of rewards earned and your financial health.
Finally, I want to say that you can use the same tactic with any card with any interest rate. If you only charge what you can afford to pay back each month, even a high interest rate won’t be of concern to you.
When all is said and done, the impact of asking for a rate decrease is minor. If, however, you’re asking because you’re having issues meeting your monthly payment, this is ignoring the elephant in the room or, as we say in New England, the “moose on the table.” If you ask out of need, I urge you to review your spending and income to try to bring the two into harmony.
If you have too many bills and not enough money, it’s time to take action. Asking for help under the CARES Act will keep your account from aging further but won’t stop it from improving if you can catch up. Alternatively, contacting a non-profit credit counseling agency to work out a budget and subsequent debt management plan will yield a much greater benefit than the impact of any possible hard credit report pull.