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Loan Calculators
Default Clause And Universal Default Clause
Credit card companies offer varying interest rates, terms, and perks or rewards for using their cards. Quite often, they also employ default clauses or universal default clauses depending on the company.Consumers should read the fine print of credit card agreements and applications to discover whether these clauses are part of the terms on the accounts. Furthermore, consumers should understand the meaning of these two clauses prior to signing up for a credit card account.
Default Clause
Simply put, the default clause grants credit card companies the right to increase the consumer's interest rate in the event of a missed payment. Credit card companies will not hesitate to apply the higher interest rate to a consumer's account should they miss a payment.In fact, credit card companies often entice new customers to apply for credit cards with offers of low interest rates with the expectation that some of the customers will miss payments and incur the higher interest rate per the agreement. The fact that your interest rate will increase if you miss a payment is included in the fine print that is printed in some obscure place on the credit card application.
Universal Default Clause
The Universal Default Clause allows credit card companies to increase the consumer's interest rate if they are late with a payment on any of the billing accounts they hold. This means that the consumer can be on time with payments to the credit card company in question, but if they are late with a payment on another credit card account, the credit card company can invoke the higher interest rate. The higher interest rate will be specified in the fine print of the terms for the credit card account. This can be an extremely high interest rate. In fact, the interest rate can double or triple in value.If the consumer is late on a payment of any kind, including utility, mortgage, car, and, of course, credit card, the interest rate can soar on the account that holds the universal default clause. The amount of the payment that is late has nothing to do with the situation. It is the simple fact that the payment is late that causes the damage.
Banks justify invoking the universal default clause by saying that they believe the risk of being repaid by the consumer has increased due to the negative credit history. Since this maneuver is legal, the best thing for consumers to do is to maintain a positive credit history.
