What the Universal Default Clause Means to you

by : Ronnica Rothe

Over the past few years, many credit card companies have started changing their user agreements to include what is called a universal default clause. Because most people ignore the changes made to their agreements, the credit card companies have been able to enact this simple but significant clause without your notice.

The universal default clause states that the credit card company can choose to raise your rate if you default on that account or any other that you may hold with other creditors. You may default by missing a payment, paying a payment late, paying less than the minimum payment, or charging over your credit limit. There is generally no forgiveness in this; the first time you make a mistake, your rates will go up.

If you are carrying a high balance, the credit card company may look for opportunities to raise your rate. The higher your interest rate, the more money they earn from you. They may check your credit report monthly to see if you are staying current on your other accounts. If you default on any account, there is a good chance you'll see your rates go up on all of your cards.

If you only made a mistake once, it will probably be worthwhile to write your creditor and give a simple explanation why and ask for your rate to be lowered back to the original rate. Let them know that you are still in a good financial position to pay off your debt to them. You can do this for each of your creditors.

If you have made a mistake more than once or on multiple accounts, you may have seen your rate increase dramatically without hope of getting it back down. Because the minimum payment goes up when the interest rate goes up, you may also be struggling with making the payments each month. If this is the case, it would be in your best interest to talk to an accredited credit counselor about a way to lower your interest rates.

A credit counselor can show you that your creditors may be willing to lower your interest rates if you enroll in a debt management plan. By committing to a payment plan, you are showing your creditors that you are serious about reducing your debt. By working through a debt management plan, you will be able to pay all your creditors in one consolidated payment. Through this plan, you should have your debt paid off in the reasonable period of three to five years. When you have successfully completed a debt management plan, you will have a greater freedom to use your income as your choose and the ability to invest in your future.

Don't let the universal default clause sneak up on you. Do what you can to pay your credit card bills on time, paying at least the minimum payment. Do not use your credit cards any more than you have to. Seek help if necessary to stay on top of your finances.