Why Should Credit Card Users Know About the Universal Default Clause?
Many credit card holders know that their plastic entails paying for higher interest rates than other forms of loans such as home and car loans.
Also, it is a fact of the plastic life that failure to pay your card bill on time will result in a still higher interest rate, often a substantial one.
What Does The Clause Mean To You? However, what majority of credit card holders do not know is that these high interest rates will still go higher due to the universal default clause.
This is indeed a very controversial provision in the contract that says your credit card provider can perform random and/or periodic check-ups of your credit report to assess your credit risk.
If there is any change that negatively impacts on your credit report, the card provider can raise the interest rate on your plastic.
Take note that it only swings one way.
If your credit report reflects positive changes, your interest rate remains the same.
Otherwise, you can expect said rate to go up into the stratosphere.
It must also be emphasized that the law does not explicitly prohibit the reprehensible practice.
It only says that the credit card provider should put the universal default clause in writing.
Thus, you must read the fine print of the credit card contract because it is usually buried in its depths.
Examples The universal default clause will work against you when you so much as delay a payment on a bill or a subscription, no matter how small, on a business that is completely unrelated to the credit provider.
Yes, you pay for your oversight in delaying payment to the concerned agency through penalties and surcharges while exposing you to the double jeopardy of the banks imposing higher interest rates on your plastic for that same mistake.
Examples include being late on a utility and car payment, going over your credit limit on another card, carrying too much total debt, possessing too many open trade lines, asking for too many credit reports, and even getting a mortgage on your car or house.
Credit card providers justify the universal default clause by saying that increasing your risk in one sector also increases the risk for the whole industry.
In other words, it is business.
Avoiding The Trap Fortunately, there are ways to avoid falling into the universal default trap.
If you are still in the process of securing a credit card, you must shop around for a card provider that does not impose the universal default clause.
At present, it is estimated that only 40 percent of providers have this clause, which leaves the other 60 percent to your choosing.
If you already have a credit card, check your bills and contract.
You need to determine if the universal default clause is in effect and if it is, then you should request to have it removed.
Now, if the bank refuses to do so, then it is time to pay all your credit card debt in that establishment and find another provider.
Also, it is a fact of the plastic life that failure to pay your card bill on time will result in a still higher interest rate, often a substantial one.
What Does The Clause Mean To You? However, what majority of credit card holders do not know is that these high interest rates will still go higher due to the universal default clause.
This is indeed a very controversial provision in the contract that says your credit card provider can perform random and/or periodic check-ups of your credit report to assess your credit risk.
If there is any change that negatively impacts on your credit report, the card provider can raise the interest rate on your plastic.
Take note that it only swings one way.
If your credit report reflects positive changes, your interest rate remains the same.
Otherwise, you can expect said rate to go up into the stratosphere.
It must also be emphasized that the law does not explicitly prohibit the reprehensible practice.
It only says that the credit card provider should put the universal default clause in writing.
Thus, you must read the fine print of the credit card contract because it is usually buried in its depths.
Examples The universal default clause will work against you when you so much as delay a payment on a bill or a subscription, no matter how small, on a business that is completely unrelated to the credit provider.
Yes, you pay for your oversight in delaying payment to the concerned agency through penalties and surcharges while exposing you to the double jeopardy of the banks imposing higher interest rates on your plastic for that same mistake.
Examples include being late on a utility and car payment, going over your credit limit on another card, carrying too much total debt, possessing too many open trade lines, asking for too many credit reports, and even getting a mortgage on your car or house.
Credit card providers justify the universal default clause by saying that increasing your risk in one sector also increases the risk for the whole industry.
In other words, it is business.
Avoiding The Trap Fortunately, there are ways to avoid falling into the universal default trap.
If you are still in the process of securing a credit card, you must shop around for a card provider that does not impose the universal default clause.
At present, it is estimated that only 40 percent of providers have this clause, which leaves the other 60 percent to your choosing.
If you already have a credit card, check your bills and contract.
You need to determine if the universal default clause is in effect and if it is, then you should request to have it removed.
Now, if the bank refuses to do so, then it is time to pay all your credit card debt in that establishment and find another provider.
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