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Avoiding Your Credit Card's Universal Default Rate

Mar 19, 2008
Many consumers at least have some understanding that their credit report score affects what sort of credit cards they may be eligible for because the level of their credit determines the levels of credit card interest rates. Yet, there is something that is not so widely known. If your credit score is, for any reason, lowered, you may see a serious increase in your existent card's interest rate. Of course, you may be wondering how this is possible. In fact, most of you may have never heard this sort of issue come up in normal conversation about credit card use. By the way, it does have a name: Universal Default.

Again, most people have probably never heard of it, but there are those that have experienced its effects. So where does universal default come from? Well, if you get out your credit card policy information or the terms and agreements, and look very carefully at the fine, fine print, you will find what is called a universal default clause. This clause states that if you, the card account holder, are default (or late paying your bills) to not only the credit card issuer but also any other lender you may have, your card's interest rate can automatically be raised. This is what is called the universal default interest rate.

Similarly, banks that issue cards and have a universal default clause included in their policies will often check the status of their cardholders' credit reports. This monitoring is to look for any instances of lowered credit report scores. If lowered scores are found, regardless of reasons, the issuer may activate their universal default rate. It may not even matter if you promptly pay your card bills to the issuer!

Since this is a real danger that most people fall into without realizing it is there, the best approach is prevention. There are some tips that you can use to avoid your credit card's universal default rate.

Pay on time. The optimum situation would be to pay the bill as soon as you get them rather than waiting for closer to the due dates to send payment. Internet billing has facilitated fast and convenient payment without waiting for payments to arrive at the issuer via postal mail.

Keep tabs on your credit report. Don't go a year without checking the status of your credit report. Some consumer advocacy groups even suggest that you check it twice a year. Also, check your credit score on a regular basis and learn all you can about what factors that are involved in the credit scoring process. Find ways to improve your credit score so that you are in less danger of the universal default clause.

Understand the terms of your card. Study your credit card's policy terms. Look to see if there is a universal default clause. Since not all card have these clauses, you should attempt to find one that does not carry this clause. If you card does have it, consider getting a card that does not have the clause and then transfer your balance to that card.

Be on the lookout for relevant card info in the mail. Don't be in a hurry to trash all of the card offers you receive because it is easy to overlook information about issues like policy changes from your card's issuer. Perhaps, they could be adding a universal default clause. You need to be aware of changes in policy terms and how they will affect your card.

By employing these tips, you can better avoid the inflated interest rates that can be activated by a universal default clause.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at compare credit cards and loan
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