24

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?

  • 5
    That's good to hear. So what's the benefit to you of them lowering your APR instead of raising your CL? – RonJohn May 28 at 4:16
  • One of the reasons I pay those cards in time is because they have high APRs (good rewards too, in specific categories like food, travel) but the card in question has 0% APR for 15 months, the end of which is coming in 3 months. I use this card for non-category spending groceries, hospital payments, etc. I could continue to use this one as a default knowing I could spread the payments without worrying about carrying balances. Does that make sense? – perennial_noob May 28 at 4:25
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    It makes sense, but worries me that you expect to regularly carry a balance. – RonJohn May 28 at 4:35
12

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.

  • 2
    It's really odd how overlooked this is. Procurement at my workplace has just started asking a certain percentage of vendors each month "Can you do better on the price for this?" and they've saved us tens of thousands of dollars. They won't do it for every bid as that will cause vendors to inflate the starting price but asking for a discount on a couple per year has worked wonders. – Myles May 30 at 20:51
  • @Myles - not sure I follow. Are you talking about a way that credit card company could save on their expenses? By asking merchants to give a higher percentage of the sale? – perennial_noob May 30 at 22:12
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    @perennial_noob No about people in general. Asking for something better is something that a lot of people just don't think of. I remember working at an inbound call center for ATT wireless. Customers who didn't ask for anything typically just kept on with the status quo, customers who asked to reduce their monthly expenses usually got a deal, those that did it politely usually got a hell of a deal. So for the OP, call them up and ask for a better rate because the worst that will happen is they say no. – Myles May 30 at 22:21
  • @quid - given 2 perspectives (mainly a counter perspective but an important one) and a general advice to try because one doesn't know what exactly the bank is looking for at that time, I'd like to mark this as my accepted answer. For completeness and for the sake of posterity would you be able to post an edit to move your comment into the response? – perennial_noob Jun 1 at 16:48
141

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.

  • 8
    This is a great answer because it hints at the subtlety of how banks market and strategize around credit card loans. Ultimately they want you to carry a balance (so they can make money off interest) and have a high transaction rate (so they can make money off interchange). And of course they want to balance that against setting the interest rate against the risk on the loan, which is unsecured. There are a lot more moving pieces than other types of loans. – dwizum May 28 at 18:56
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    This. I used a credit card for years paying off the balance in full every month. Following some unexpected events, I decided to run up to near the credit limit and pay it off over the next 3 or 4 months, rather than disturbing other long-term investments for cash. Guess what - the card issuer gave me an unrequested doubling of the credit limit, after there was an increasing balance remaining unpaid at the end of successive months! – alephzero May 28 at 20:57
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    @quid (in his comment in one of the recent responses) brings up a good counter point. The credit card company not only makes money on interest on unpaid balances but also on fees charged to merchants on every swipe. In fact this may be a better strategy for the company to make money off a customer who always pays off all balances in full. By keeping the APR low, they're enticing the customer to use that card more and get more transactions. – perennial_noob May 28 at 21:24
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    You could just as easily say that from the banks point of view, it represents an opportunity to renegotiate terms to prevent a proven customer from taking their money elsewhere. – John K May 28 at 21:29
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    I'm not sure I follow how you get that decreasing the APR will result in them making less money. If he has no balance riding, then the decreased APR will have no effect other than making causing him to charge more and thus they make more money on the 2% they get on sales. If he has a balance riding, a lowered APR will encourage him to keep more of a balance riding and thus they may or may not make more depending on whether the increased balance outweighs the lower rate. It's not at all clear that a reduced APR means they'll make less. – David Schwartz May 30 at 20:35
15

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.)

  • 36
    So much this. If you're carrying a balance, you're using credit cards wrong. You should not care what the APR of your credit card is because you should never pay any interest. If you're paying interest, stop using credit cards right away. I have like 6 credit cards, and I have no idea what their APRs are. Because I pay them off in full every month. You should do the same. – Apologize and reinstate Monica May 28 at 15:50
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    @perennial_noob In that case I agree with DJClayworth's answer and dwizum's comment that they are just unlikely to extend the zero/low APR (it would be loaning you money indefinitely for free, which banks just hate doing). The zero APR is there to sucker you into carrying a balance. – user3067860 May 28 at 20:37
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    @UKMonkey Citation please. Because that is not how credit score works, as thoroughly documented many, many places on the internet. – user3067860 May 29 at 14:39
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    @UKMonkey You also don't need to carry any of that across the payment due date for it to count. If you get your statement and immediately pay it, it still counts for utilization. So no need to pay interest. (It is a common misunderstanding.) – user3067860 May 29 at 15:50
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    @user3067860 - "The zero APR is there to sucker you into carrying a balance." Kinda true - it's really there as a marketing, customer generation/retention trick. Banks are OK with you carrying a zero balance, as long as you're generating transactions (and hence interchange). In many ways, interchange income is "better" for the FI because it's essentially risk-free, vs interest income from you carrying a balance (especially on something unsecured and volatile like a credit card) brings along the need to offset risk, reserve requirements, and hence is a costlier source of income. – dwizum May 29 at 17:24
3

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.

  • 6
    This is very country-dependent. In the UK, for instance, there are at least six major banks currently offering a fixed term at 0% with no fee. The Bank of England base rate is currently sitting at less than a third of the US federal funds rate, so institutions are competing for low-risk borrowers with genuinely free debt for the chance of getting their high-interest business further down the line. – Will May 28 at 13:48
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    Pete, I'm confused by the "borrower ends up paying about 7.5% interest" statement. How is that so? – Roijan says reinstate Monica May 28 at 15:59
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    @RoijanEskor 5% upfront, on the entire balance works out to about 7.5% if paid off in the year, It is actually more, but close enough for discussion. – Pete B. May 28 at 16:42
  • @Pete B: Doesn't that depend on how you pay it off? If it's equal payments, 7.5% seems close. (But I'm too lazy to do the actual math :-)) But if you make the minimum payments through the year, then pay off the remaining sum at the end, it's much closer to 5%. – jamesqf May 28 at 17:45
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    @briantist - in my case it is a card that is on 0% purchase APR (soon to expire) and so it will be an extension to 0% purchase APR for potentially 6 months to 1 year. – perennial_noob May 30 at 22:14
3

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.

  • 1
    But, if your first sentence is right, then the bank should be willing to aggressively lower the APR, because that will help them compete for the OP's business --- especially since they've already demonstrated their faith by increasing the credit limit. Maybe they'd be willing to do both. – jpaugh May 31 at 17:59
  • Yeah, that seems like how quid said in their response. It is looking agreeable that there are multiple levers to consider and multiple ways of earning for the banks. – perennial_noob May 31 at 22:14
2

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.

  • 2
    I've gotten 0% on new purchases offers from existing cards on many occasions. The idea is to capture the spending, the credit card company makes money when you spend as well as from interest. When you're a long term customer they'll offer a 0% on spending offer in order to get you to change which card you're using or maybe use that card for a single large purchase; they want to at least make the fee even if they know you don't pay interest. – quid May 28 at 21:02
  • @quid - see that's a valid point. If the banks want to retain someone (even an avg long standing customer but not super rich) they might benefit from 0% Apr offer too. – perennial_noob May 28 at 21:15
  • Should i edit the answer to say it’s inaccurate, but leave it up for posterity, or delete it? – thehole May 28 at 21:22
  • @thehole, you may want to just expand. It's definitely more of a customer acquisition strategy, but for the "pay off the card every month crowd" it's a "please use our card that you leave in that shoebox to buy that couch" strategy. – quid May 28 at 21:24
  • How come you didn't present this counter point on the most voted answer currently? I credit you there in a comment @quid – perennial_noob May 28 at 21:25
2

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. :-)

  • it is beyond the expenditure of a few cents. You're right in that there is no harm in asking. However, could there be a folly in requesting a lower APR in lieu of increased limit? Perhaps credit utilization and scores is one ramification to consider. – perennial_noob May 29 at 3:58
  • @perennial_noob In that sense, you'd have to compare the benefits of a higher credit score resulting from lower credit utilization, to smaller payments resulting from the lower interest. A better credit score means lenders will be willing to loan you more money. If your credit limit is already adequate for your needs, this doesn't do you much good. A better credit score can also result in getting lower interest rates. Whether these would be better than the rate the bank would give you in this hypothetical situation ... who knows? – Jay May 29 at 13:57
  • Further thought: If you're carrying a balance -- as the OP says he is -- reducing the interest rate is a clear benefit: you'll pay less in interest every month. The benefits of a higher credit score are more ambiguous. – Jay May 29 at 16:22
  • I'll have paid off the balance by the promotion expiry. But you're right and I could use it to even out payments for the months/year following the expiry of the promotion. – perennial_noob May 31 at 23:55
1

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.

  • 1
    "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)" Every credit card I've seen has a 0% APR if you just pay the bill in full on or before the due date every single time. So given that "you can ensure that you will be able to pay it off", any credit card will effectively have a 0% APR. – a CVn May 30 at 12:01
  • @aCVn - of course there is that. But the difference is that with an actual 0% APR you do get to carry balances which may be useful for individuals who have had unexpected expenditures on them and getting a personal loan is definitely more expensive. – perennial_noob May 30 at 21:46
  • @perennial_noob True. However, that does not mean that it's in your best interest to borrow money simply because you can. I would say it's in my best interest to have 0% APR available; but unless I'm somehow making (or saving) money by carrying a balance, it's not worth it to actually do so. – jpaugh May 31 at 18:04
  • @jpaugh - no that's not the focus of the discussion. You're right and that's basic personal finance to not spend more than you have. The point has been that there have been sudden unexpected expenses put in and extending the zero percent gives more buffer time to spread such expenses over a few months (versus paying the next month in full). – perennial_noob May 31 at 21:01

protected by JTP - Apologise to Monica May 29 at 4:09

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