They ARE Plotting Against You – Watch Out For Universal Default!

Almost all credit card companies have adopted the policy of Universal Default. So what is Universal Default? This is the legal right for them to change the terms of your agreement if you become a riskier borrower.

What kinds of changes can they make? Well, they can immediately raise your interest rate up to a predetermined “default rate” that you’ll find somewhere in the fine print of your credit card agreement. It is quite common to find these rates ranging from 24% - 32% or more right now.

Oh, but you don’t need to worry about that – you’re responsible and pay your bills. They won’t ever think that you’re a riskier borrower, right? It may surprise you to learn how they define a “riskier borrower” …

What Makes You A Riskier Borrower?

• If your payment is even a minute late to them = Default Rate.
• If they discover a late payment 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.
• If you bounce a check = Default Rate!
• If you charge over your credit limit = Default Rate!
• If you apply for another card and get turned down = Default Rate!

I could almost agree with the idea of punishing borrowers for risky behavior if the credit card companies didn’t so actively do everything in their power to almost force you in to it. They’ve set the system up to encourage you to fail. How? Here’s a few ways they try to suck extra cash, in the form of late fees and higher interest, out of your wallet.

• Shorter billing cycles: You used to be able to pay each bill once a month on the same day, as in you get paid on the 5th of the month so you pay your bills on the 6th. But now, many of these companies bill you every 22-25 days, meaning your bill is never due on the same day of the month anymore.
• Offering more accounts: Credit card companies used to “reward” their best customers with higher credit limits to encourage more borrowing (to earn more interest). But that isn’t enough for them anymore. They’ve discovered that instead of raising your limit, it is much more profitable to offer you another credit card account instead. They’ll stick a teaser rate on it and a sweet balance transfer offer, and now you’ve got two bills to pay them each month, increasing the chances of you being late on a payment.Whereas your parents had one BankAmericard and one Mastercharge (remember when they were called that?) and maybe a Diners Club card for business, you’ve instead got a whole wallet full of cards – and a sock drawer full too – all with measly little balances and who knows when the bills are due on each one? Why did this happen? Clue: It Was On Purpose!
• Inconvenient Due Dates: They purposely choose a day where it’s inconvenient to get your payment there. For example, if you are an electronic bill payer, they set your payment to be due on a Sunday or a Monday holiday – days where they can’t process your payment. Who cares if you sent it to them, if they aren’t there to receive it, it doesn’t count.

If you pay by snail mail, figure having a due date on a Monday unless there is a Monday holiday, and then it’ll be on a Tuesday. I personally had 3 of my credit cards due on Christmas Day last year – oh, must have been a coincidence. And it is rumored that these companies actually pay people to monitor individual payment habits in order to set due dates that make it the most difficult for you to pay on time – hoping you’ll be a day late – because it’s oh-so-profitable.

I don’t know if that last one is true or is a widely used technique, but be aware: These companies are NOT your friends and most don’t care about playing fair. And if you run short of cash one month, don’t think you can choose which bill to pay late and the rest will be fine. These companies are constantly monitoring your credit activities and looking for an opportunity to sock it to ya.

And that is called “Universal Default”.

The Pay Day Loan Solution

Gonna be short one month on a couple bills? Get a Pay Day loan and pay your bills. I know the charges for one of these is ridiculous – but not nearly as ridiculous as suddenly having all your credit card bills jump to 32% and having your minimum payments quadrupled. Your Pay Day loan is a one-time charge of maybe a $100 or so. But this Universal Default doesn’t go away and can result in costing you thousands and ruining your credit (which, you can read here, will also increase things like your insurance costs).

Yes, they really ARE out to get you. Try to pay off your credit cards in full each and every month. If you can’t do that and you carry balances on your credit cards month after month, you’re going to get hit sooner or later. Watch your back!

Related Articles:

• Universal Default – Yes, They ARE Out To Get You!
• The Anatomy of a Credit Score
• Should You “Opt Out” of New Credit Offers?
• Credit Scoring with Your Credit Card: Magic Number is Still “30”
• Credit Cards - Secrets to Increase Your Credit Score
• “SAFETY NET” Credit Scoring Factor