"Universal Default": What Credit Card Companies Don't Tell You
Credit Card Companies are Watching You!
SUMMARY: Universal Default is the practice of credit card companies raising your interest rate if you pay a bill late.
Rockwell was right when he sang “I always feel like,
Somebody’s watching me, And I have no privacy.” Someone is watching you…Credit Card companies! Not only are they paying attention to your pay history with them, they are also watching closely to see how you pay your other bills. And if they don’t like what they see, they can raise your interest rate without your knowledge. The practice is known as Universal Default. Basically, it means that if you pay any bill late, even your cable bill, your credit card company can raise your interest rates. Some companies will raise your rate up to almost 30%. They do this even if you have a perfect payment history with them.
Credit card companies justify this rate hike because they now see you as a risk. Higher risk equals higher interest rates.
The Worse Your Credit, The More Watched You Are
It is estimated that nearly one-third of lenders have universal default clauses. They keep track of you by periodically checking your credit report. They can check yearly, quarterly, or even monthly. People with a history of late payments are generally checked more frequently than people with a history of on-time payments.
There are a number of concerns about universal default clauses, the most obvious is that a person’s payment history with one company should not affect their interest rates with another. An example is when the two accounts have nothing in common with each other; such as a phone bill and a credit card. The other problem is that the practice can easily lead to a vicious cycle in which a person cannot get out of debt because of high interest rates. Compounding the problem is when credit card fraud or identity theft affects an innocent person’s credit score. While this can be corrected on a credit report, the creditor has no obligation to return the interest back to its original rate.
If credit card companies have increased your interest rates even though you have been on time with your payment to that company, you may have fallen into the Universal Default trap. The mounting debt caused by higher interest rates can put you into a hole that you would never be able to pay your way out of. That’s where I can help.