'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
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
Kelly Rote, communications manager for credit
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
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."