Universal Default – Yes, They ARE Out To Get You!

Read the fine print of virtually EVERY credit card agreement these days, and you will find a hard to understand clause called “Universal Default”. Most everybody understands that failing to pay your credit card bill on time can result in a late charge being tacked on. This has been going on for years.

And many credit card users have learned the hard way that failing to make your payment on time can result in a significant and immediate increase in your interest rate up to the “default rate” that is also listed in the fine print of your agreement. You’re sailing along with your introductory 3.9% interest rate and your monthly payment arrives 12 minutes late (seriously, many companies have actually gone to a “payment has to arrive on this date by this hour” or it’s considered late not) and BAM! Your rate jumped to 32% and your minimum payment just quadrupled!

Okay, you deserved that. You shouldn’t have been late. You’ve learned your lesson and you’ll do better. Right? But have you had the wonderful experience of Universal Default yet? If not, just wait. More and more credit card companies are utilizing this clause to increase revenues.

What Is Universal Default?

What is Universal Default? The clause buried in your fine print says, in some incomprehensible legal mumbo-jumbo pig-Latin language, that if you have a late payment, they have the right to raise your interest rate and change the terms of your agreement. But didn’t I already talk about that in the above paragraphs? No, no, no… the Universal Default clause says that if you have a late payment on ANY account, they can ding you.

• If your payment is 12 minutes late to us = Default Rate.
• If we find a late payment on your credit report to ANY company = Default Rate.
• If your credit score drops = Default Rate.
• If an old collection account shows up on your credit report = Default Rate.

Oh Wait – There’s More!

• Bounce a check = Default Rate!
• Charge over your credit limit = Default Rate!
• Apply for another card and get turned down? = Default Rate!

And watch out for those introductory offers. You might receive a nice offer of a low rate for an extended period of time, so you can balance transfer a bunch of money over. Then, they use the Universal Default clause when one of the above happens, and not only do they jack your rate – they can do it retroactively back to when your introductory period started – READ THE FINE PRINT!

They’re watching! They’re Waiting!

You may have a perfect payment history for 25 years with that company – doesn’t matter. You forgot to pay your phone bill or get into an argument with that book club company who refuses to cancel your account and keeps sending you Oprah’s recommendation each month, and any or all of your other accounts can call in their Universal Default clause.

What the @#$%#$ happened?

They don’t have to warn you or get your permission. You open your next set of statements, and OOOOOOOOOMMMMMMMMMMMGGGGGGGGGGGGGG??? What the @#$%#$ just happened?

They have the right to do this to you because it was in your credit card agreement. If you didn’t want this, too bad. They justify the clause as they lobby congress (and pay our representatives with massive perks to get them to listen) with the “missing payments make them riskier borrowers, and riskier borrowers should pay more”.

It Makes Me Angry!

I deal in mortgages. I understand the idea that riskier borrowers pay more for their mortgage loans. It’s a lot of money to lend you, and if you have not proved yourself to be reliable and trustworthy up to this point, you shouldn’t get your money as cheaply as someone who has taken care of business. I get that.

But what I don’t agree with, to the point of making me angry, is when they purposely try to trip you up just to get you to pay more. I would NEVER do that to a mortgage client. I am constantly trying to help them improve their credit and helping them get a better loan and interest rate. I can’t even imagine tricking them into doing something that would hurt their credit so they have to pay more for their loan.

And just how do they trick you? Stay tuned for the next article: “They’re Plotting Against You!” to find out what they are doing, and find some solutions to help.

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• They ARE Plotting Against You – Watch Out For Universal Default!
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• Credit Scoring with Your Credit Card: Magic Number is Still “30”
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