Interest rates are low, so why is your credit card rate so high?

We're constantly reminded that interest rates are at historic lows. The average rate is 3.32% on a 30-year mortgage and 4.15% on a five-year car loan, reports

But credit cards are another story. The average rate on plastic is 15.98% — and it could top 20% if your credit is fair. If you're in the penalty box for skipping payments, the rate could soar to nearly 30%.

So, if interest rates are so low, why are credit card rates so high?

One reason is that cards are riskier for issuers than other types of lending. Default on your mortgage or car loan, and the lender can repossess your house or vehicle. Credit cards are unsecured debt, meaning there's no collateral an issuer can take to recover what's owed if you don't pay.

Of course, the rate on your credit card doesn't matter if you pay off the card each month and don't trigger interest charges. If you carry a balance from month to month and your card has a steep rate, these tips could help you secure more favorable rates and save you money:

  1. Improve your credit score. The best interest rates go to consumers with the highest credit scores, because they're more likely to repay the lender. For example, the average interest rate is 13.04% for consumers with excellent credit, 19.3% for those with good credit, and 23.13% for people with fair credit, according to WalletHub's recent Credit Card Landscape Report.

    Paying bills on time and using no more than 30% of your available credit are key ways to boost your score.

  1. Negotiate. Contact your card issuers to try and negotiate a lower rate, starting with your oldest card first, advises the consumer credit reporting company Experian®. They may reward your loyalty with a rate reduction, particularly if you can show a long track record of paying your bill on time. Or, they may reduce your rate if you show that you've improved your credit score.

    If your issuer won't budge, ask if they will temporarily lower your rate for a year or so, Experian suggests.

  1. Check out the competition. If you can't get a reduced rate with your current issuer, you might find a better deal by shopping around for a new card. (Keep your old account open though — having available credit can help your credit score — as long as the card doesn't charge excessive fees.)

  1. Pay by the due date. Penalties for being 60 days late on a payment could include an issuer raising your interest rate, typically to 29.9% on existing and future purchases. Federal law, though, requires that the card issuer restore your old rate if you make on-time minimum payments for six consecutive months.

Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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