If you’ve ever read the fine print of your credit card agreement, then you’ve probably run across the term “universal default.” But do you actually know what it means?
The provision, generally buried in the fine print of your credit card agreement, basically says that if you are late on any payment to anyone, the interest rate on your credit card could shoot up and your credit score may be damaged.
The problem has reached an all-time high, universal default complaints are definitely on the increase. More than one-third of major credit card issuers act on these clauses regularly, and apply the rule to customers, even if they had no late payments on their own card.
Many consumers are unaware of the dangers because they either don’t read or don’t understand the credit card agreement. If a credit card offer includes a universal default clause, you need to know what you’re being set up for. If you’re one day late on any payment to any creditor, you could be subject to a default rate as high as 29.99 percent on many others.
Consumers should always thoroughly research the terms of an agreement, particularly those with default clauses and those offering zero percent financing. Unfortunately, many of these are not widely understood and could steer people into financial chaos.
It doesn’t necessarily take being late on big-ticket items such as a car or a mortgage payment to trigger the default clause. It could be for something as innocuous as an overlooked $30 utility bill or a forgotten $20 magazine subscription.
To make maters worse, often times the card holder is powerless to do anything about it, it’s one of those new ironclad rules that does not allow much leeway for talking or negotiation. Creditors periodically check your credit file and if you’re late paying any other bills, not just theirs, they slam you. Low interest rates enjoyed at the beginning of a credit relationship could, in many cases, double or triple.
While proponents of this practice argue that the increased rate is necessary to offset the increased risk associated with lending you money, universal default can have dire consequences for someone who is struggling to keep their head above water. Even if such a person is current on the majority of their payments, defaulting with one lender can trigger rate increases with other lenders, causing the customer to fall behind across the board.
While there has been a lot of talk about restricting “abusive practices” such as universal default, these efforts have generally gone nowhere fast.
Tags: credit cards, credit score, debt, high interest rates, lending, no interest loans, universal default
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