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'Universal default' rules explained

The provision, generally buried in the fine print of your credit card agreement, basically says that if you are more than 30 days 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, say consumer credit experts.

"Universal default complaints are definitely on the increase -- at a disturbing rate," says Paul Richard, executive director of the San Diego-based nonprofit Institute of Consumer Financial Education. "More than one-third of major credit card issuers now say they act on these clauses regularly." A recent survey found that a staggering 39 percent of credit card issuers said they apply the rule to customers, even if they had no late payments on their own card.

But, Richard adds, many consumers are still unaware of the dangers because they either don't read or don't understand the credit card agreement.

One false move could be fatal
Gerri Detweiler, author of The Ultimate Credit Handbook, says, "These default clauses are getting scarier by the minute. 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."

Kelly Rote, communications manager for credit counselor Money Management International, says, "We continually caution consumers to 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, Richard explains. "It could be for something as innocuous as an overlooked $30 phone bill or a forgotten $20 book club subscription."

Powerless to do anything about it
Scott Bilker, financial guru and author of "Talk Your Way Out Of Credit Card Debt," says, "It's one of those new ironclad rules that does not allow much leeway for talking or negotiation. They 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."

 
 
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