Asking bank to reduce APR instead of increasing credit limit

Question

My credit card just notified me that they raised my credit limit (unsolicited). This would do well to my utilization and thus improve my credit scores overall. However, my overall utilization across all credit lines is already less than 10% (with most of them being very low (near 0, so these are paid off always) and only 2 of them being 25% and 70% and I'm working to pay them off within 4 months).

These latter 2 are anyway at 0% APR for that duration and so I am confident of paying them off by then. Given that a credit raise is a sign of the bank having an increased confidence in me could I call them and bargain for an extension of 0% APR or very low value in lieu of the recent credit raise?

Answer 1

The offer of an increased credit limit may be a sign of increased confidence. However from a bank's point of view it is an attempt to get you to spend more and thus make more money from you. Decreasing your APR however will result in them making less money from you. There is no equivalence.

Answer 2

You are misunderstanding utilization. You do not need to carry a balance past the due date to create utilization, in general carrying a balance past the due date is not a good idea. The best practice is to always pay off each month's balance when you receive your statement. (I'm sure there's some tiny exception in there somewhere, but for normal people--just pay the full balance on your credit card every month! No need to complicate it.)

Say you have a $100 credit limit (picked for easy math, not realism) and your statement date is the 1st of the month, with the payment due date being the 15th.

During January you spend $20 with that card.

Your statement comes Feb 1st saying your balance is $20 and you pay it immediately.

Your utilization for January would be 20%, but your interest paid would be $0 because you did not carry any balance past the payment due date.

You can always call your bank and try to bargain about anything, but given that you are close to paying off your cards it may be more practical to see if you can raise funds another way to just pay them off. (For example, yard sale, do an odd job or two around your neighborhood, try to really live on an extreme budget for a month, etc.)

Answer 3

I've written a number of answers to this effect but my philosophy is just call and ask. Always be nice, but just ask. The worst possible outcome is no change.

You can rationalize your way to any outcome. No, they won't lower this because this stream of logic. Yes, you can do this because of this stream of logic. You never carry a balance so the interest rate doesn't matter? So what, ask for a lower one. The call will take 10 mins.

Lending is a business of generating revenue and managing risk. You don't know what strategy the bank's underwriters are operating under until you call and ask.

Just in March I had to make a $3,000 purchase. I called my credit cards and told them the situation, one offered me 0% on purchases for the next 6 months. Now I can leave the cash in a savings account for 5 months, because you need to make sure you absolutely do not pay the interest, and make a little interest. Sure, there isn't much to gain, but why not try?

One word of caution, be aware that credit line increases may require a credit pull when you're the one who initiates the request.

But otherwise, your credit card bank called you because of some potential fraud, ask them to lower your rate. You lose nothing.

Answer 4

In addition to DJClayworth's answer there are very few (truly) 0% finance offers. Most have a fee of around 5%. In the case of a 12 month 0% finance offer that is paid off prior to the period expiring, the borrower ends up paying about 7.5% interest, not exactly cheap and certainly not free.

You may be able to get another 0% interest rate period, but your goal should be to not pay CC interests ever again. Those 0% deals are not healthy for your long term financial well being.

Answer 5

Banks compete on APR, less so on credit limits. That is, a bank might be willing to give you a lower APR to keep you from going to another bank, but it's less likely they'll give you a higher credit limit to do so. If they think you're a good credit risk, then they'll want to increase your limit so that you'll borrow more, regardless of whether you have other offers. And if they don't think you're a good credit risk, then they aren't going to increase your credit limit, because they don't want your additional business (that is, they don't want you to borrow more money from them). The credit limit is based on how much they think you can repay, not how much they think they need to offer you to keep you from going elsewhere.

So the idea of "bargaining" between APR and credit limit has limited validity. You're looking at it from your point of view: you're offering to give up something in exchange for you getting something. But you need to look at it from theirs: you're asking them to give up something they want (you being able to borrow more from them) in exchange for them giving up something they want (APR). That doesn't make any sense. It's a bit like if you were pushing for more overtime, and your boss came back to you with "I see you'd like to work more overtime. What if instead we paid you a lower hourly wage?"

That being said, asking for a lower APR by itself is a reasonable thing to do. It's not guaranteed to be successful, but it's worth a try. And if that doesn't work, you can also look for new cards that will offer a lower, or zero, APR.

Answer 6

A point that hasn't been made yet is that "0% on new purchases" offers are a customer acquisition strategy. In my experience (US), they're not used for customer retention.

More common for retention are "0% balance transfers" offers, which as noted in Pete B's answer aren't truly free.

Answer 7

Sure, you can ASK. Frankly I doubt they'll say yes, but what does it cost you to ask? A little bit of your time, maybe a few cents on your phone bill if you have a pay-by-the-minute plan. :-)

Answer 8

I don't think the bank would agree to reduce your APR. Increasing your limit is much more profitable from their perspective.

If you have a high limit, that creates the possibility that you will borrow more money, which creates the possibility that you won't be able to pay it off, which means you would pay interest in proportion to your credit - this is where the bank makes money, after all. Even if you feel that you can pay it off easily, you can always get hit with a sudden emergency.

For many people, a higher limit also has a psychological effect in that they feel like they have more money "on hand", so they allocate more of their budget to spending.

That said, you should still ask for a lower APR - they might agree due to their own customer retention policy. But it won't necessarily be because your limit went up.

As you say, having more credit increases your score. However, it doesn't increase it that much and credit score doesn't matter that much anyway (I can link questions on here if you're curious). The main effect of the credit score is that if it's really low (as in, a history of delinquency on major loans such as car or house), the bank will either refuse to give you a credit card or demand exorbitant APRs (25%+). But really high scores don't translate into better APR. Mediocre score will get you about 16%, good score will get you 12%. If you have a unique situation (qualifying for a very "high wealth" card like the fancier AmEx cards) then you can get maybe 10%, but I doubt you can get an ordinary credit card with less APR than that. And 10% is still a lot to be borrowing for anything other than emergencies, really. However, by signing up for new cards, you could conceivably get APR 1-2% less than whatever you currently have.

You have a 0% card, which is great! Keep using it as much as you can. It is in your interest as a consumer to borrow as much as possible on the 0% APR (provided you can ensure that you will be able to pay it off) and then move to a different 0% APR card once your current introductory period is over.