Universal Default
What is universal default?
Universal default is a clause that is often tucked away in the fine print that says credit card companies can raise your interest rate if you are late on a payment…to any creditor. Yes, you read that correctly. The universal default clause allows a credit card company to raise your interest rate if you are late on a payment to any creditor, not just the said credit card company.
What qualifies for universal default?
Universal default may take effect if you are late on almost any payment. Payments ranging from mortgage, auto or bank loans, even phone, cable and utility bills. You may also be at risk if the bank “thinks” that you are a credit risk. Some other events that may trigger the universal default clause include making too many credit inquiries, maxing out a credit card, or even using more than 50% of the credit line on a credit card.
What can you do about it?
With an estimated 45% of credit card companies including the universal default provision, the only real thing that you can do to avoid it is to always pay your bills on time, or even early. When the credit card company checks your credit report — some do it monthly, some do it quarterly, and some do it yearly — if you have no negative marks there is a good chance that you will avoid the dreaded universal default.
