How Does the Universal Default Clause Work?

A lot of credit cards have a universal default clause. This clause simply states that if you are late with credit card Company A, credit card Company B can raise your interest rate even though you were not late on your payments with credit card company B. Credit card companies will periodically check your credit report to see if your credit or financial situation has changed since the time you were approved for a credit card. If they see late payments with your mortgage, auto, or other credit accounts they can increase your interest rate even though you were not late with the initial account. When they see late payments they consider you to be a higher risk customer. When your rate increases it could elevate to the default rate which averages 27 percent. A rate of this amount is substantial.

Interest Rate

It's an unfortunate situation when the interest rate is increased because your minimum monthly payments increase as well. Any one struggling to make their payments will fall even further behind. Your best plan of action may be to contact the credit card company and ask for a reduction in your rate. Sometimes this works and sometimes it doesn't. If you are unable to receive a rate reduction you may want to see if any other credit cards have any introductory or promotional rates available. There is a chance you may be able to receive a zero percent promotional rate, for a period of 12 months, when you have a balance transfer done. You will not have to pay any finance charges for the entire time. There will be a balance transfer fee when this transaction is completed. When you make late payments on other credit cards it can have other effects as well. Some credit cards will lower your credit limit and depending on the delinquency they may close your account altogether.

Changes

There are some credit card companies that have discontinued the universal default clause, such as Citibank. Most people don't even know their credit card is subject to this clause because it is buried in small print within the terms and agreements which are not read by the vast majority of credit card users. This is why it pays to read to fine print contained within the cardholder agreement. You can probably save yourself a lot of money later on down the line. Whenever you receive your credit card statement make sure you review it to make sure there haven't been any changes. The credit card regulators have put some changes in effect designed to correct a number of problems that card users are facing. These changes will not take effect until July 2010.

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