Just when you thought credit card companies couldn’t be any more irksome (to be diplomatic about the whole thing) along comes “universal default.” Credit card universal default has recently been limited by the CARD Act, but the concept is still news to most people and never fails to make credit card interest rates more expensive.
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What is Credit Card Universal Default?
In essence, credit card universal default is when your credit card company–the one you have a perfect payment record with–jacks your interest rates through the roof because they found out you were late once on another card or other debt payment plan. The card or debt payment plan does not have to be affiliated with the credit card that’s raising rates, either.
Credit card companies are no long allowed to raise rates when you are in universal default, but you will be considered “in default” in general and they may close your account for this reason.
Why Don’t Credit Card Companies Tell You?
Universal default notification is, naturally, buried in the fine print of the cardholder agreements of the credit card companies that employ it.
Universal default clauses were very often associated with credit card offers of zero-percent interest rates and zero-percent financing. This way, the credit card issuer could back out of their offer for 0% APR, and as part of the default clause legal wording, slam you with a new interest rate that is truly punitive in nature.
Basically, if you missed a payment on any debt, at any time, for any reason, the default clause would be invoked and you would get a much higher interest rate.
Now, if you fall into universal account, the financial institution can close the account and demand you pay the balance in full immediately. What if you can’t afford to do so? You credit inevitably suffers and you will pay higher rates with another creditor.
How to Avoid Credit Card Universal Default
To avoid universal default, read the fine print before you sign the credit card agreement.
If you don’t have time to read the fine print then call the credit card’s customer service line and ask them about it–they’re paid to answer these questions. If you’ve already got a card with a universal default clause, you can cancel the card and transfer your balance to a card that doesn’t have universal default, or you can simply be extra vigilant about paying all of your bills, including telephone, utilities, mortgage loan, college tuition, on time.
To learn more about universal default and credit cards, consult with a consumer advocacy group or a financial adviser.