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You may be aware of the fees associated with a credit card: late fees, over-limit fees, transfer fees, etc. But there is another reason that can cause you to pay more for using your card – The Universal Default Clause!

We do not have a universal default clause on our credit cards.

What is this?
A Universal Default Clause states that a creditor can raise your interest rate if you have been late on any of your loans - not just with them.

It’s well known that if you have a credit card and you are late with a payment, that credit card company will probably charge you a late fee and possibly raise your interest rate. In addition to this, those credit card lenders who follow the Universal Default Clause can raise your interest rate to 30% or more if you are late paying on another credit card, loan, or utility bill.

For example... Let’s say you have a VISA®, with another company, that has a universal default clause and you happen to be late on your utility bill. The company that issued your VISA can increase your interest rate because you were late with that payment.

Is this legal?
At this point, yes, as long as the creditors disclose it in their credit card agreements. Therefore, it’s important to read the fine print of your credit card disclosure. Many creditors feel that if you are late on any of your loans, then you run the risk of being late with them and are less likely to pay your debt. Any of your creditors have the right to monitor your credit history and those with the Universal Default Clause will be doing so.

What “triggers” the Universal Default Clause?

• Making a payment late on any of your credit cards, loans, mortgages, or utility bills

• Exceeding your credit limit

• Bouncing a check

• Having too much debt

• Having too much credit

• Getting a new credit card
   

How can you avoid the Universal Default Clause?

• Stay away from credit cards with a universal default clause. (We don’t do this!) Make sure you read the fine print or ask questions about what specific circumstances affect your interest rate. When you shop for credit, make sure you: research all of your options, compare the costs and benefits, and read all of the fine print. If you don’t have a copy of the disclosure, call and ask them for a copy.

• Know your current obligations. Check your current credit cards to see if they have the universal default clause; you may want to transfer the balances from these cards to another card, like ours. Keep an accurate list of all your: credit cards, loans, utility bills, balances, limits, interest rates, and due dates. Monitor your bills as they come in; look at the transactions and check the due dates.

• Review your credit report. It’s important to know what your current interest rates are and also what is listed on your credit report. A FREE copy of your report is available at: www.annualcreditreport.com.

• Pay ALL your bills on-time. It may be best to pay your bills when they come in. Or, try to pay them to arrive a least a week before the due date. You may also consider paying your bills automatically and electronically each month through the Internet (like Web BillPay), through a payroll deduction, or automatic transfer.

• Be proactive. If you are struggling, call your lender or utility company and ask for help. They may be able to adjust your monthly payment or due date to make it easier on you. It’s your goal to protect your credit report and score with a consistent record of on-time payments. If there is a problem, make sure you dispute it right away.

• Write your local legislator. Currently, Congress is discussing this and trying to get these unfair practices, like the universal default clause, illegal. To find your current representative, please visit  http://www.house.gov/writerep/.
   

Sources:
www.yahoo.com, “What Credit Card Companies Don’t Want You to Know.”, David Bach, March 12, 2007, http://finance.yahoo.com/expert/article/millionaire/26303,
March 14, 2007
www.bankrate.com, “’Universal Default’ Rules Explained.”, Bill Burt, January 25, 2007, http://www.bankrate.com/brm/news/credit-management/20040120a1.asp, March 28, 2007

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