Universal Default
Universal Default: What is it?..and 5 Steps to Avoid it.
What is Universal Default?
To be quite frank, it’s yet another way for credit cards to nail you with high interest rates based on other things you do. If something simple happens like you forget to pay that old gym membership…BAM…now all your credit card rates could be jacked sky high. Thank you ma’am, can I have another?
Seriously though, in a nutshell universal default is a sneaky provision some credit cards (around 40-50%) put in their agreement which allows them to raise your interest rates when they don’t like what they see reported in other aspects of your “credit life”.
A simple example is if you miss a payment on credit card A, then credit card B can choose to suddenly raise your interest rate if they have a universal default clause. What they’re essentially saying is “if you default with someone else or do something we don’t like, you default with us too”. Nice, eh?
Universal default clauses are very broad and can be triggered by many things such as:
- Being late on another credit card
- Being late with other things that end up being reported on your credit like utilities, cell phone, gym memberships, etc.
- Carrying too high of a balance on other cards
- Too many inquiries on your credit
- Court records like judgements, leins, child support, alimony, etc.
….the list goes on
The controversy over universal default revolves around numerous issues. However, one of the primary points of interest in our opinion is, how can they accurately judge your risk and justify raising your interest rate based on other business relationships where the entire story isn’t seen by them, and may not even be accurate in the first place, especially in an environment of very questionable credit reporting and collection practices.
So What Can You Do to Avoid Universal Default?
Here’s 5 steps you can take to try and make sure you don’t become a universal default victim:
- Don’t use cards that have universal default clauses. Find out which credit cards have universal default provisions and which ones don’t. Avoid or cancel the ones that do and transfer your balances.
- Continually monitor and optimize your credit reports. Our credit reporting system sucks and inaccuracies are notoriously high. You can either learn to clean it up yourself or get professional credit repair and optimization help.
- Watch your account agreement changes like a hawk. Even if you use a card that doesn’t have a universal default clause, that doesn’t mean they can’t slip it in later. Almost all credit card agreements allow them to make changes at any time.
- If you’ve already been hit with universal default, challenge it. Say an unknown collection account shows up on your credit report and triggers universal default with your credit card. If that collection account isn’t yours and shouldn’t be there in the first place, challenge that with your credit card company like a bulldog and/or transfer to another credit card. If all else fails, seek out a consumer attorney through naca.net and see if you have justification to sue the credit card company and/or credit reporting agency.
- Get out and stay out of debt.
If you want to dig into topics like this in more detail, check out the following video of the PBS documentary, “Secret History of the Credit Card”
