Watch Out for the Universal Default

As credit tightens due to the mortgage lending slump, credit card companies are increasing their usage of "universal default" to help cover their potential losses. What this provision in their contract allows them to do is to charge you an interest rate at the very maximum allowed in your state, typically just over 30%, if you have a late payment on any other credit, such as a mortgage, auto or other credit card. This increase can easily push someone who’s having financial difficulty over the edge if it causes over-limit fees.

To avoid this trap, check your contract to see if it has such provisions. If it does, try to pay down this card so that if there is a problem you won’t be also hit with higher fees.

Should you be affected by this increase, try negotiating with the credit card company. Some will work with you and may reduce the interest rate immediately or on a faster schedule. Others won’t work with you. If they don’t, you may find it to your advantage to seek a balance transfer to company who will give you a more favorable rate.

Also, keep a close eye on your bill. Sometimes credit card companies will apply this charge incorrectly. If you see a bill that seems out of line to you, call the company. They may have made a mistake. Getting these kind of problems resolved quickly is important in helping you maintain good financial health.

Have you been hit with a universal default? Were you able to negotiate a better arrangement? Any other thoughts? Leave a comment to share them.


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