The fun had to end eventually; interest rates were at record lows for a while, and you could access credit at extraordinarily low rates. However, the market has changed, and interest rates have skyrocketed. How much have they changed? In 2021, the average annual percentage rate (APR) for credit cards that assessed interest was just 16.45%. The average rate is 22.77% — a 38% increase over two years.

Learning how to lower your credit card interest rate is critical to reduce your interest charges and save.

How do credit card companies set interest rates?

Before researching your card options, it's important to understand how credit card companies set their rates. These companies are masters of making money, so they use complex algorithms to determine the level of risk you pose as a cardholder and your likelihood of making your payments on time.

Credit card interest rates are usually variable, meaning they can change over time. When setting your initial rate, credit card companies consider the following variables:

Market index

Credit card companies usually base their APRs on a market index, such as the prime rate, which informs what lenders charge on loans and other forms of credit.

Credit card APRs are typically the prime rate plus the company's margin rate. For example, a credit card company may charge the prime rate plus 14.00%. Currently, the prime rate is 8.50%, so your APR on that card would be 22.50%.

Prime rate (8.50%) + Card margin rate (14.00%) = Your APR (22.50%)

The prime rate is not fixed; it changes along with market conditions, so it can change over time.

For example, if your card's margin rate was 14.00%, here is how your APR would have changed over the past two years along with the prime rate:

*Card APR assumes the issuer charges a 14.00% margin + the prime rate

Your credit score and credit history

Besides the market indices, credit card issuers also consider your credit score and credit history. In general, applicants with very good to excellent credit qualify for the lowest APRs. If you have a limited credit history or poor credit with past missed payments, the issuer will likely give you a higher APR to offset their risk — or deny your application altogether.

Your debt-to-income ratio

Your credit card company wants to ensure you can comfortably afford your debt payments, including the minimum-required payments on your new credit card. That's why companies consider your debt-to-income ratio (DTI) — how much of your monthly income goes toward your debt payments.

Requirements vary by credit card company, but you typically need a DTI of 50% or less to qualify for a credit card.

When credit card rates change

Unlike personal loans or car loans — which have fixed rates for the length of your repayment — credit card rates can change. Your APR can fluctuate for the following reasons:

• The index increases: If the underlying index a company uses as a benchmark increases, the card's APR will also increase. For example, if the prime rate increases from 8.50% to 9.00%, your card's APR would increase by 0.50%.

• The credit card company changes its margin rate: Credit card companies can change their margin rates; they're not locked. However, companies must notify you in advance of any changes.

• You miss a payment: If you miss a payment, the credit card issuer can penalize you with a penalty APR, which can be significantly higher than the standard APR. For example, an issuer may increase your APR from 22.00% to 29.99% when you miss a single payment.

How to lower your credit card interest rate: 5 ideas

Now that you know how credit card companies set their rates and when those rates can change, you can learn how to lower your credit card interest rate. There are five ways to reduce your APR:

1. Build your credit

As mentioned earlier, credit card companies consider your credit history when determining your APR. The better your credit, the more likely you are to qualify for the lowest rates. If your credit score is less than excellent, you can boost your credit with the following tips:

• Set up automatic payments: Your payment history plays the biggest role in determining your credit score. Setting up automatic payments prevents you from missing payment due dates, so your credit score will improve over time.

• Make payments twice a month: Your credit score is partially based on your credit utilization — how much of your available credit you use. You can reduce your credit utilization by making multiple payments per month to maintain a lower balance.

• Stick to a budget: Running up a balance on your credit card can hurt your credit. Create a budget and stick to it to manage your spending and pay down your debt.

2. Shop around

Credit card rates can vary significantly between credit card companies and cards. If you shop around, you can find cards with lower-than-average APRs. These cards, for example, currently offer APRs starting below 20%:

• Discover it® Cash Back: 17.24%-28.24% variable APR

• Blue Cash Everyday® Card from American Express: 18.49%-29.49% variable APR (see rates and fees)

• Prime Visa: 19.74%-28.49% variable APR

Many cards have prequalification tools, so you can check your eligibility and view potential APRs without affecting your credit. Prequalifying makes it easier to compare your options, but once you find the right card, you'll have to submit an application and consent to a hard credit check. Every hard credit check you undergo can damage your credit, so only agree when you really need a new credit card or line of credit.

3. Ask for a lower APR

If you're happy with your current card — for example, if you enjoy its cardholder benefits or rewards program — but think its APR is too high, you may be able to negotiate a lower rate.

Use the information you found from shopping around and collect your card prequalification offers. Contact your current card issuers and explain that you're considering switching to another card with a lower APR, and share exactly what terms other cards offer.

To retain you as a customer, the credit card company may be willing to reduce your APR.

4. Research credit union options

Particularly if you have less-than-perfect credit, a credit union may have card options with more favorable terms than major banks or other card issuers. Credit unions are nonprofits, so they tend to give their members lower rates and fees than other institutions.

The APRs on credit cards issued by credit unions can be significantly lower than the national average. You can use the credit union locator tool to find a credit union near you.

5. Consider a balance transfer card instead

Even if the credit card company is willing to reduce your APR, the reduction will likely be nominal. If you want to maximize your savings, consider transferring your card balance to a card with a 0% APR promotional offer.

With some cards, you can transfer your balance and enjoy 0% APR for a limited time, such as 12 to 18 months. After that, the card's normal purchase APR applies. The cards below offer introductory balance transfer periods ranging from 12 to 18 months:

• Blue Cash Preferred® Card from American Express: 0% APR on balance transfers for 12 months; 18.49%-29.49% variable APR thereafter (see rates and fees)

• Chase Slate Edge℠: 0% APR on balance transfers for 18 months; 20.49%-29.24% variable APR thereafter

• Discover it® Balance Transfer: 0% APR on balance transfers for 18 months; 17.24%-24.24% variable APR thereafter

The promotional period gives you a year or more to pay down debt without paying interest charges so that you may save a significant amount.

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Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.