Whether you're buying a car, shopping for insurance or signing amortgage application, we can all agree there are many documents to read and understand. Sometimes, however, the information is written in such heavy 'legalese' that we must rely on professionals to explain the contents.
It's no different with credit card applications. Now, let's be honest here. Do you really read the little booklets sent along with your credit card bill advising that there have been changes made in the interest rates or other conditions? Or, for that matter, do you carefully read the back of the credit card application delineating the different rate structures that apply?
There's an old adage that says, "The devil is in the details." The Universal Default Clause is one of those little devils that are hidden in the credit card agreement. What is this clause? Basically, it says that if, for any reason, you're late in paying your bill or your credit score is reduced for whatever reason, the credit card company has the right to raise your interest rate.
The companies frequently check your credit report to determine if you have defaulted on any payments of any debts. It doesn't matter if you have never missed a payment to them specifically or have always paid more than the minimum due – it's within their rights under this clause to increase your interest rate if they feel you have become a higher risk.
More banks continue to use universal default policies to increase interest rates based on their customers' credit performance with other creditors. Here's a cited example. "You recently purchased a product using your credit card at an APR of 8.9%. Several months down the road you're informed that for whatever reason, your rate is now 27.99%. This new rate isn't just applied to new purchases. It's also applied to the balance that you already carry on the card."
Is this legal? Yes, it is, unfortunately.
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The problem is that most credit card users are not aware of the Universal Default Clause and are quite shocked when their interest rate is suddenly increased. If this has happened to you and a call was made to your credit card company, you may have been told that upon checking your credit report it was found that the debt you have incurred, when compared to your income, has exceeded a set ratio limit.
If you have seen a dramatic increase in on your credit card Finance charges, call the company to ascertain the reason. If you have received a notice in the mail regarding such an increase, you may consider closing your account and paying down the debt. The bottom line, however, is to keep all of your payments current, and check your credit report regularly so that you won't fall victim to this 'little devil.'
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