The Universal Default Clause: You Could Be A Victim

Have you ever been in a situation where you were able to pay most of your bills but perhaps you let the least essential debt go for a month? Well this can hurt not only your credit rating but also affect your interest rates and credit limits with all of your creditors. This is the practice of Universal Default. It is a relatively new clause added to the terms and conditions of banks and credit card companies. Now banks and credit card companies have yet another excuse to charge you more money and potentially wreak havoc on your credit scores. All without your knowledge.nnUniversal Default involves banks and credit card companies monitoring your payment histories with other creditors, even your utility bills. Essentially this means that if you are late paying a bill with one company, your other creditors, which you are paying on time, can raise your interest rates. They can use your late payment with other credit card or utility companies as a justification to raise your interest rates as high as 30%. Some banks even go as high as 35%. Because you have paid one bill late, even something like a telephone bill, your other creditors may now see you as a risk. Higher risks equate to higher interest rates.nnBanks and credit card companies who practice universal default generally monitor a consumer’s credit reports on a monthly, quarterly, or yearly basis. The following are some reasons the universal default clause is activated: nn• Late payment on a credit card, mortgage, auto loan or utility bill.nn• Exceeding the credit limit on any credit card.nn• Using 50% or more of your available credit limit on any of your credit cards.nn• Having too many credit inquiries.nn• Carrying too much overall debt.nn• Getting a new mortgage, auto or personal loan.nnHow can you tell if you have been affected by a universal default clause? First, take a look at your credit card statements and check to see if your interest rates have changed. Second, order your credit reports. You will want to pay attention to the following sections on each of your credit reports:nn(1) Experian—“Inquiries Shared Only With You.”nn(2) Equifax—“Inquiries that Do Not Display to Companies.”nn(3) TransUnion—“Account Review Inquiries.”nnMore than likely, if you see your credit card company listed in these sections, you are being monitored. Make sure you thoroughly check your reports for, errors, mistakes and any incorrect information. Any inaccuracies should be disputed as this information may be the reason universal default occurred. Unfortunately, at this time, there is not much you can do if you have been affected by a universal default clause. Calling your creditors and attempting to negotiate lower interest rates is one option. nnConsumers who are already over burdened with debt certainly do not need another heap of debt unfairly forced upon them. Universal default punishes consumers and has the potential to ruin credit history and credit scores. There is help on the horizon.nnLawmakers are responding to consumer groups who oppose such practices. In June of 2006, New York became the first state to outlaw the practice of universal default. This issue has also gained attention on the federal level. Recently, Democratic Rep. Keith Ellison of Minnesota introduced a bill to the House which seeks to protect consumers from universal default clauses.nnRep. Ellison’s Universal Default Reform Act of 2007 would prohibit credit card companies from raising interest rates on consumers based upon payment histories with other credit card companies, utility companies and other lenders. Rep. Ellison has a series of legislative proposals he plans to introduce as part of his consumer justice agenda. His Reform Act has the backing of many consumer groups.nnIn the meantime, monitor your credit card statements, make it a practice to read the fine print on all credit card applications and most of all, stay informed.nnwww.rebuildcreditscores.comnn