Credit Cards: What is the Universal Default Clause?

Most people who carry major credit cards are well aware that the interest rates associated with them tend to be higher than for other types of lending, such as home or auto loans. Anyone who has paid their credit card bill late more than once or twice is also aware that doing so may cause the interest rate on their card to go up ? sometimes by quite a lot. Many credit cards carry interest rates of as much as 20% or 25% annually, and customers who want to avoid interest rates in that range make an effort to pay their bills on time.

What many people do not realize, however, is that up to one third of all credit card issuers now include what is known as a "universal default clause" in their bills. This information, usually disclosed in the tiny print on the bill that few people bother to read, indicates that the interest rate on your credit card may be increased if you pay bills late to other lenders, even if you pay your credit card bill on time.

This means that paying any bill late that could show up on your credit report, such as an auto payment or a utility bill could cause your credit card interest rate to go up. This, in turn, could hurt your credit score. There is currently nothing in Federal law that prohibits this practice; the law only requires that lenders disclose it in writing. Credit card companies justify this by saying that customers that make late payments to anyone increase the risk for all lenders. Nevertheless, many, if not most, credit card customers are unaware that such policies exist.

Not all credit card companies have such a policy; in fact, most do not. Customers who are not interested in having the interest rates of their credit card tied to their ability to pay their phone bill on time would be advised to read the fine print in their credit card statement. If such a policy exists, you could either complain to your credit card issuer about it or shop around for another credit card. The lesson to be learned here is a valuable one ? when you receive your credit card bill or a notification that your credit card billing terms have changed, take a moment to read the fine print.

ęCopyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a site devoted to debt consolidation and credit counseling, and HomeEquityHelp.net, a site devoted to information regarding home equity loans.


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