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Does asking for a credit card rate cut affect your credit score?

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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?

The hard truth is this: 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 ultimately depends on the creditor, what its rules are and what kind of relationship you have with it. The best thing to do is ask your creditor if requesting a rate decrease will mean a hard pull.

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.

We contacted Capital One, Discover and Citi to see how they handle such requests and the representatives all relayed that they don’t pull a credit report if a customer asks for a rate reduction. However, the reality is that each creditor has its own rules that the customer may or may not be privy to.

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. Remember, 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, try to use the same tactic with all your cards, no matter the 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. At the end of the day, your interest rate really doesn’t matter if you always pay your balance on time and in full.

The bottom line

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, 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. 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.

Written by
Steve Bucci
Credit and Debt Expert Contributor
Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring, and debt-related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.
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