There has been a lot of talk about Universal Default lately. Many consumers are oblivious to the effects of Universal Default, or don't even know what it is. This can be contributed mainly to the fact that credit companies don't want you to know about it. Hence the Universal Default clause is buried in the tiny fine print of a credit cardholder agreement.
Universal Default revolves around the principle that if you pay any bill late that could show up on your credit report, such as an auto payment or a utility bill, it could cause your credit card interest rate to increase. Even though consumers may have perfect payment history on a credit card account, under the Universal Default clause, they are still susceptible to an interest rate increase based on the lowering of their credit score. In many cases, the newly increased interest rate can be made retro-active, meaning that it will be applied to all previous and current balances on the account.
When choosing a credit card, make sure you carefully read all of the fine print. Check the Other or Miscellaneous APRs section (or anything that discusses default pricing) of the agreement the credit card company sends you. This is typically where you will find your creditor's Universal Default clause. The easiest way to avoid being taken hostage by Universal Default is to make all of your payments on time. Try to pay your bills at least a week before the due date. An even better strategy is to pay the bills as soon as you receive them.
Credit issuers look for any justification to raise your interest rate, and they look often. Creditors and banks check credit reports annually, quarterly, and some even monthly. Consumers with poor payment history will have their credit report checked more frequently than those who have a history of making payments on-time. More than one-third of all credit companies apply penalties to customers for Universal Default, even if they have no late payments on the company's own card.
If your interest rate(s) has increased due to Universal Default, try calling your creditors to request they reverse it. Identify a simple reason why you forgot to make one payment, but show that you are still strong financially. If you are able to make a payment greater than the new minimum, inform your creditor, and send the payment in immediately. They may be willing to drop your rate back down again.
ABOUT ACCC: American Consumer Credit Counseling (ACCC) is a non-profit 501 (c) (3) organization dedicated to empowering consumers to regain control of their lives through education, counseling and debt management. ACCC provides individuals with practical solutions for solving financial problems and recognizes that consumers' financial difficulties are often not the result of poor spending habits, but more frequently from extenuating circumstances beyond their control. As one of the nation's leading providers of financial education and credit counseling services, ACCC works with consumers to help them with the best plan of action to reduce their debt and regain financial stability. For more information or to access free financial education resources log on to http://www.consumercredit.com
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