Credit Building

The link between credit score and interest rates

Mar 19, 2023

No matter which type of credit agreement you have, there’s likely to be a rate of interest on top after a certain point. And these interest rates can be very high if you haven’t secured a 0% interest-free period, making it difficult to pay back what you owe if the interest takes up the majority of what you’re able to afford to pay back every month. But did you know that your credit score can affect the interest rate you are offered?

Credit cards, loans and mortgages all charge interest. This is a percentage of the money you’ve borrowed that must be paid back on top of your debt.
Interest on credit cards is represented by an annual percentage rate (APR). But what you might not know is that it's possible for providers to change your interest rates.

How does your credit score affect your interest rate?

When you apply for credit, lenders tend to do a hard credit check on you. They look at your credit report and any additional information they’ve requested. They use this to work out how creditworthy you are, and how likely it is you’ll be able to repay your debts. So your credit history is really important because it shows any missed payments, defaults or County Court Judgments you may have had in the past six years.

But they don’t actually look at your credit score. Your credit score is for you. It summarises what lenders see when they look at your credit report to give you an idea of how they’ll make their decision. And remember, your credit report isn’t all they look at. So, if you’re wondering what credit score gives you the best interest rates, it’s not as simple as one specific number. 

Your credit scores will give you a great idea of what you need to do to drop your interest rates, however. You can read more about how credit scores work here. And if you want to know the difference between your credit report and your credit scores, take a look here.

Does a higher credit score mean lower interest rates?

Basically, yes. The higher your credit score, the better chance you’ll have of being offered credit at a lower interest rate, meaning you could save yourself thousands by having a better credit score when you apply for mortgages, loans and credit cards.

Of course, it’s never as simple as that. There could be other factors in your credit application which mean creditors will only offer you higher interest rates, but getting your credit score in shape will help a lot.

Even though lenders don’t see your credit scores, if it’s low it’s probably because there’s something on your credit reports (which they do look at) so that needs fixing. Checking your credit scores often is a good idea, as there could be simple errors bringing down your score or fraudulent activity happening in your name. You can find out more about fixing errors on your credit report here.

Every point matters

Lenders make money by charging interest, and high interest rates mean you could pay back much more than the original amount you want to borrow. Loqbox worked out this table to give you an idea of how much your credit score affects interest rates:

How to lower credit card interest rates

Lowering your interest rates is a great way to get the beat on your debts and to save you money in the long term. This is especially true with credit cards because their APR is usually higher than other types of credit. But how do you go about getting them changed? Just call up your credit card provider and ask?

Well, yes, sort of. The truth is you can negotiate. APR is variable, and credit card providers can decide to lower interest rates if it suits their needs. Of course, the high interest rates are what make them profit. But so do the customers who pay it — you! So, here are some hints and tips on lowering your credit card’s interest rates:

1. Check your credit scores

Find out what your credit scores are. How healthy are your finances? If it’s looking pretty good you should be in a decent position to approach your credit card company. But even if it isn’t, there are options.

Fortunately, it’s really easy to check your credit scores. You can do it for free, and without hurting it, using one of our recommended services below. Find out your credit score with each one of the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion.

ClearScore (uses Equifax data)*

Credit Club (uses Experian data)

Intuit Credit Karma (uses TransUnion data)

*In the interest of transparency, ClearScore gives us a little commission if you sign up using this link.

2. Get some comparison rates

There will be plenty of new credit card providers bending over backwards to offer  the best rates for new customers. If you’ve got a great credit score, the chances are you’ll be eligible for a handful of them. Get the rates, but don’t apply for them yet (that would cause a hard credit check and impact your credit score for around six months).

Instead, grab as many comparisons as you can. Having three or four will really help your cause. Explain to your current credit card provider that you’ve been offered better deals but you’d rather stay with them. What can they do for you? Remember, some of the competitors’ offers will only be for 12 months, but they still work for negotiations.

If your credit score isn’t very good, but you need to drop your interest rates in order to be able to pay your debts, and avoid bankruptcy, be honest with your credit card provider. They may be willing to help as some interest is better than none if your account is closed down.

3. Call your credit card provider

It’s going to be one of those phone calls so get comfy. Assume that you’ll be on the call for at least 20 minutes so you’re mentally prepared! Once you’ve got through to a human being (just choose the options to speak to an advisor, in whichever department), it’s best to be frank and polite. 

You should call the credit card provider you have been with the longest first. Especially if you have a good history of making payments in full and on time. Explain that you are a good customer, that you have better credit card offers on the table, but you want to stay with them.

Stick to your guns. Remember, what you’re saying is true. It might feel like you are being dishonest, but the truth is that the people on the other end of the phone will probably have had many of these calls. You might find that they just quickly funnel you to a better deal.

Of course there’s still a chance they’ll be unwilling to budge. In that case you may have to try and take the matter to an employee at a higher station with authority to make decisions. Don’t be afraid to ask to speak to a manager. As long as you’re friendly, it’s a reasonable request when you’re looking for a second opinion.

If you are trying to reduce your interest rate when you don’t have a good credit score, it may be necessary to tell them that you are thinking of closing your account.
This is a bit of a longer shot, but some credit cards will be willing to reduce their interest rather than let you go. So it’s worth a try!

4. Get it in writing and check the small print

OK, so this isn’t a watertight plan. There’s as good a chance your request will be refused as accepted, so be mentally prepared for that. But those are pretty good odds for something that can save you hundreds in the long term. If you're successful, get everything agreed to in writing and check the small print! It’s easy for mistakes to be made when you’re communicating over the phone. 

You’ll want to pay special attention to the contract. What changes have been made? It could be that the option for lower interest rates has a short duration and they rocket up afterwards. Or there may be caveats if you miss payments which are really heavy. Give it a proper read to be sure! 

If you’re struggling with your debts and you are declined a reduction in interest rates, you can also ask for a temporary break from paying interest. Credit card providers will consider these options so it’s worth asking.

Does asking for a lower interest rate affect credit scores?

No, It doesn’t. This is one of the great things about trying to lower your credit card interest rates. You can apply for the reduction without hurting your credit score. And that’s true whether you are successful or not. So give it a go!

How to boost your credit score

Did you check your credit scores using the links above? Or do you already know them? Are they as high as you think they should be?

If the answer is no, don’t panic. You can still give them a boost. You just need a fast and proven way to build your credit scores with Experian, Equifax and TransUnion.

Building credit is a long game but the good news is that Loqbox has three great tools to help you get there. For our quickest route to a better score, get your membership started for just £2.50 a week and activate Loqbox Grow, Loqbox Save and Loqbox Rent.

Our members have reported an increase of up to 300 points in the first three months of using all our tools combined. You could be seeing your credit score rise in no time!

Improvements to your credit score are not guaranteed.

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