Avoiding The Universal Default Clause

More credit card companies are employing the universal default clause as part of their credit card offers. It is a highly profitable venture on their part and very detrimental to the consumers who fall prey to it.

In fact, more than thirty per cent of all credit card companies now invoke this clause whenever possible. The universal default clause allows lenders to increase the interest rate on the credit card account if consumers are late on their payments for any of their credit accounts.



The problem is on the rise especially since many consumers do not bother to read the fine print on the application. It all looks the same; so many consumers are lulled into believing that all credit card companies work alike and offer the same terms. However, the truth is that they don't.

Consumers can do themselves a huge favor by learning to read the fine print and steer away from companies that list the universal default clause as one of their policies.

Read The Fine Print

Read the fine print on any credit card accounts before you apply to them. Avoid any card that has a universal default clause attached to it. If it is necessary for you to select a card that has a universal default clause, then select one that has the lowest default clause.

A credit card account is a legally binding agreement. Consumers should understand the terms of the account. Likewise, consumers should open any mail and make sure that it isn't from a creditor advising of a change in terms.

Pay Your Bills On Time

The best line of defense is to pay all of your bills on time, all of the time. Keep a running tally of your bills and their due dates in your planner to help you remember to pay them on time. Write your bills up as soon as they arrive, and send the payment immediately. Failing that, send the bills out at least a full week to avoid a late payment due to unusually heavy mail traffic. Some companies give less leeway time to pay, so check the due date and write it on the outside of the envelope or in a planner.

Consider paying your bills automatically each month through your bank or electronically. If necessary, call and ask to have the due date on your account changed permanently to make it easier to pay the bill on time.

Stay Within Your Limits

Avoid charging more than you can afford to pay. Maintaining lower balances on your account will make it easier to pay your bill on time. Act promptly to correct any errors that you discover on your bills or credit report. Keeping a list of all credit card account numbers, balances, interest rates, due dates, and limits is helpful.

What Activates The Universal Default Clause

It is important to avoid activation of the universal default clause, since once it is activated it is impossible to undo. Several things can trigger it, including missed payments, late payments, and high debt to income ratio.

Quite often, this change will take place without advance notice or explanation at all. Banks and companies that utilize the universal default clause periodically check consumers' credit reports to see if they can use this clause against them. Customers who have been late in the past will be reviewed more frequently than others. Some companies check monthly, others quarterly, and others annually or not at all.

The Domino Effect

The domino effect may follow once a company invokes the universal credit clause. Other credit companies may decide to invoke the clause as well. As a result, a negative change in the consumer's credit due to a late payment can wind up costing the consumer so much more.

The entire balance on the credit card account is affected, not just new charges. Companies have the ability to change the interest rate on money that was already borrowed when the consumer had a positive credit rating. Low interest rates can double or triple and consumers will find it harder than ever to stay out of debt when they are held to new and higher interest rates. Even if you pay the credit card bill in full, the negative impact remains on your credit score.

What Can Be Done

Avoid becoming a credit risk, and you can avoid having the universal default clause invoked. Once it has been activated, the only thing that can be done is to attempt to minimize the damage. Transfer the balance if possible to another card with lower interest rates. The sooner this is done the better. Once the domino effect takes place, finding a credit card company to offer you lower rates will be difficult, if not impossible.

If the clause has been invoked by error, it will be difficult to prove it. The consumer will need to prove that the bill has been paid on time, and unless the payment had been sent by certified mail, this will be difficult to do.

Review your credit reports at least three times a year to ensure that the information on it is accurate. Consumers are entitled to three free credit reports a year, one from each of the CRAs, or credit reporting agencies. Take steps immediately to correct any information that is not accurate.