DIY: Lower APR Credit Cards

Do you want to lower the interest that you are paying on our credit cards? Of course you do! Who wouldn’t? Would you believe that you actually can have control over how much interest you are paying on your credit cards? You can actually lower the APR on credit cards that you carry all by yourself! Well, not completely by yourself, but you are in control of the situation, and it’s really easy to do. Do you want to know how?

An article in Investors Business Daily (included below) details how you can go about lowering your credit card interest rate. To summarize the article, if you want to have a low rate credit card, you might be able to accomplish this simply by increasing your credit limit.

How to Get Lower APR Credit Cards

A significant portion of your FICO credit score is derived from your level of credit utilization. If you are using a signification portion of your available credit credit, the credit reporting agencies will downgrade your credit rating. The lower your credit rating is, the more expensive it will be for you have to borrow money. By borrowing money, we mean either via credit card interest rates of by getting a traditional loan, like an auto loan or a mortgage for a home.

So you need to ask your credit card companies to increase the amount that you are allowed to borrow. If they are willing to let you have a larger pool from which to borrow, great! Now the key here is do not increase the level at which you borrow. Continue to borrow as you have been, or better yet, pay down your balance even further. Once the credit reporting agencies start to see the gap in your available borrowing levels versus the amount that you are borrowing, they will increase your FICO score.

So how does that help you to get lower APR credit cards? Here’s how, once your FICO score increases, you can then ask your credit card companies to lower your interest rate. They will check your FICO score and determine that you are a trusted borrower and they will likely decrease the rate of interest that they charge you. There you have it. A DIY low interest rate credit card.

If you are interested in reading the article from IBD, here t is:

In an uncertain economy, cash is king. Keeping your debt low is queen.

One way to limit your debt is having a high credit score, which lowers your borrowing costs.

The savings can pay for dining out once a month. Or it can amount to one or two months’ worth of mortgage payments a year.

Here are some steps that make the most sense for consumers.

• Increase credit limits on your credit cards. The idea is that you end up borrowing a smaller fraction than you’re allowed, making you look like a better credit risk.

The size of your debt relative to the amount you can borrow or use on a credit card is known as your level of credit utilization.

And that makes up 30% of your Fico credit score, the most widely used calculation.

One way to do that is by getting your credit card company to boost your credit cap, says Erik Larson, president of NextAdvisor.com, an online credit service provider.

“Card issuers will do it only if it makes business sense,” Larson said. “They will look at your payment history mainly. And they might look at whether your existing limit was set when you were younger and had less income.”

• Diversify your credit ceilings.

This is the flip side of the tip above. If your income is high, your credit limits likely are too.

Suppose all of your cards have credit limits above $25,000.

Cards with lower limits are commonly categorized as revolving credit accounts.

Having a history of paying balances on diverse types of credit counts for 10% of your Fico score.

“If all of your cards have limits above $25,000, your credit report will say you don’t have any credit cards,” Larson said. Your score will be hurt.

Your solution is to get a card with a sub-$25,000 cap.

• See if you qualify for a business credit card.

Credit bureaus sometimes frown on a consumer who has too many personal cards. Too many personal cards boosts the odds that you will miss payments.

Since business card activity usually isn’t reported to credit bureaus, they give you the benefit of having an additional piece of plastic without risking the red flag of having an excessive number of personal cards.

Just don’t make late payments. Issuers do report those to credit bureaus. And they will hurt your score.

Why It Matters

Here’s how much some steps can save you money, Larson says.

Reducing your credit utilization ratio to 30% from, say, 90% typically boosts your score by 20 to 80 points. It depends on other factors in your score. And it depends on whose calculator you use. Many banks’ and credit bureaus’ Web sites include calculators.

Diversifying your credit by adding an installment loan could raise your score by 10 to 50 points.

A Californian seeking a $200,000 30-year mortgage with a credit score of 700 would be likely to get an interest rate of 3.854% as of Thursday instead of 4.683% if his score was 650, according to the Fico.com calculator.

That would save him $1,164 in interest in the first year. It would save $35,000 over the life of the loan.

Upping his score to 800 would save another $305 in the first year (and) $9,146 (for the life of the loan). “The interest rate change is not a straight line,” Larson says.

This will work with any credit card company, Visa, Mastercard, American Express, Discover. Follow these tips. Get low APR credit cards and save thousands of dollars.