Credit card rates and what influences them

If you have any type of credit card than you are already aware of the fact that your credit cards all have different interest rates. But perhaps you are wondering what causes these interest rates to go up or down or even what decides the interest rates from the beginning. If you have a variable interest rate credit card then you are more likely to notice how often interest rates change, but you still might be clueless as to what influences these interest rates or what causes the rates to go up or down. Here are some of the basic things that cause your credit card rates to change:

• Interest is actually determined by the supply of and demand for credit. If there is a high demand or an increase in the demand for credit this will increase the price of credit, or interest rates, and a decrease in the demand for credit will lower the price of credit, or interest rates. But at the same time if there is increases in the supply of credit this will lower the interest rates, whereas a decrease in the supply of credit will raise your interest rates.
  
• Many different parties contribute to the supply and demand for credit, which affects your interest rates. But it isn't each party's individual actions but all of their actions together that affect our interest rates.

Those parties are:

1. Yourself because when you put money in the bank you are allowing the bank to loan that money to other people. This affects the supply of credit in the economy
   
2. If you buy U.S. Savings Bonds you are lending money to the U.S. government which contributes to the supply of credit
   
3. If you borrow money to buy a car or even carry a balance on your credit card you are contributing to the demand for credit
   
4. Businesses and the government, as well as foreign organizations affect the supply of and demand for credit because they also borrow money and save money.
   

• Inflation also affects interest rates because lenders need to be compensated for the decline in purchasing power of what they lend which is why we have to pay interest. But if inflation is expected to be rapid interest rates are going to be high, and if inflation is going to be slow interest rates are going to pretty much remain the same if not drop.
  
• Your credit score probably has the biggest impact on what kind of interest rate you are going to be paying on your credit cards. Your credit score is basically like a report card for what kind of a person you are when it comes to using credit wisely and is going to be the biggest influence in your credit card rates. If you have a really good credit score, meaning you have hardly any balances (not a lot of debt) and you make all of your payments on time then you will qualify for a low interest rate. But if you have super high balances (have a lot of debt compared to your income) and you make your payments late then you are going to have a higher interest rate.
  
• The Feds fund rate, which is an overnight lending that banks charge each other, also influences the interest rate that you pay on credit cards. Recently it has been cut down to 3% and is expected to be cut even more as the United States heads towards a recession, but instead of lowering the credit card interest rates like the cut in the rate should interest rates have actually gone up.

But in addition to the regular interest rates many credit card companies charge something called a "universal default" rate. This rate is charged to consumers who are actually late on any type of loan payment that is reported to the credit bureaus. Basically what this means is that even if you have a perfect payment record with your credit card company, but you are late on your home equity line of credit payment you're your credit card can raise your interest rate to their universal default interest rate. Here are some examples of the "universal default" rate.

• Citibank has eliminated their universal default rate
  
• Capital One does not have a universal default rate
  
• Chase has just recently bumped their universal default rate to 32%
  
• Before Chase increased their "universal default" rate, the highest rate used to be 30%

As it currently stands, aside from the "universal default" rate, credit card rates are sitting at around 18% APR. To many customers that rate seems rather high, especially with all of the talk about how our economy is getting ready to go into a recession. So rather than paying those high interest rates you would prefer to lower your interest rates because it will enable you to reduce your monthly interest payments, but it will also reduce your overall debt load. Here are some steps that you can take to help lower your credit card rates.

Step one:
Find out what your current interest rates are. Make a table or create a spreadsheet and enter in each credit card name, current interest rate, and the current balance on each card. You will also need to organize the cards from the highest interest rate to the lowest interest rate so using a spreadsheet might be a little bit easier because you can sort the results once you finish entering everything into the spreadsheet.

Step two:
Find out what the current average interest rates are so that you can have something to bargain with. Here are some ways that you can find out what the current average interest rate is, but keep in mind you also want to look to see how low the interest rates are as well:

• Go to Cardweb.com and CNNMoney.com use their card search tool to find a list of companies that are offering the lowest interest rates.
  
• Go through the offers you have received in the mail to find the lowest rates that you have been pre-approved for
  
• Now what kind of customer you have been. The better customer you have been the more chances you have of getting those lower interest rates
  
• Find out your credit score, if you have a credit score above 750 you should be able to qualify for a credit card interest rate of 10% or less.

Step three:
Now call your credit card company and ask them about lowering your current interest rate. To do this you are going to need a script that you can follow, being prepared will increase your chances of being successful. Here are some things to include in your script:

• What your current interest rate is
  
• Lower rate offers that you have found through your research
  
• Can your company match that offer or do better?

Step four:
You might also try telling them that you are going to take your business elsewhere if they won't lower your rates. This is especially effective if you have more than one credit card and one of your cards has a significantly lower rate than the others. But you need to keep in mind that you need to remain polite but firm so that you can convince the customer service agent that you are serious about taking your business somewhere else, if you get mad and hang up or start yelling they are not going to take you seriously.

Step five:
If you are getting absolutely nowhere with the customer service agent then you are going to need to move up higher on the chain. What you need to do next is to politely ask to speak with their supervisor. Here are some things to keep in mind when talking with a supervisor to get the best results:

• Supervisors might have more authority to lower your interest rates, but they can also be more attuned to the risks of losing a customer
  
• Make sure that you repeat your script with the supervisor, making sure to mention the specifics on other offers that you are considering.
  
• If the supervisor is still not budging then you might try reasoning with them. Tell them something like you know your business is important to the company because it is more cost effective to retain customers than find new customers but the high interest rates just aren't worth staying a loyal customer.
  
• If you still get nowhere simply thank them and then call back in a month.

Step six:
If after you have tried everything and still aren't getting anywhere it is time to consider what other options you have. Your best bet would be to make good on your threat to take your business elsewhere. Here are some reasons to simply switch to a new card:

• Credit card companies generally offer low introductory rates to entice new customers
  
• Since you have already done the research finding a card with a  favorable interest rate should be rather easy
  
• Make sure you read the fine print, especially the section regarding balance transfers. If the fees are reasonable and the new rate is not going to go up in a few months then you have found the right card to switch too.