Family On A Budget

The credit card companies are forever finding ways to make big bucks. One of the main reasons we are on a budget is because we didn’t learn how to manage our credit cards correctly. A mistake that we are going to great pains to learn from. A late payment lead to such an increase in our interest that it proved to be a domino effect. Obviously we were at fault for screwing up, but the CC industries thrives on your mistakes. Heres one way.

I recently read about the Univeral Default Clause that is cropping up on Credit Cards. Basically this clause allows the credit card to up your interest if you are late on any payment, not specifically their credit card. Imagine paying your phone bill late and suddenly your credit card goes from 2% to 30% overnight.

According to the Institute of Consumer Financial Education, currently almost 40 percent of credit card issuers apply a hidden in fine print Universal Default Clause to their customers.

Generally, a universal default clause states that a creditor reserves the right to penalize you with an increased interest rate if you’re late — that is, in default — of a payment to any other creditor. They justify this practice because, in theory, if you pay any of your creditors late, you pose a greater credit risk and are less likely to pay your debt.

Your creditors also have the right to routinely monitor your credit file. So a creditor with a universal default clause will be watching — and waiting.

Let’s say your Visa card has a universal default clause. Any late payment — whether it’s on your utility bill, home equity loan, or Macy’s credit card — acts as a “default trigger” allowing the bank that issued the Visa card to double or even triple your interest rate overnight. Your all-important credit score will be hurt as well.

For more information on this read an informative article written by David Bach The Automatic Millionaire on the Universal Default Clause .