May 28, 2018
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Universal Default Penalties

Feel like your credit card company is ripping you off—or, to put it more precisely, trying to get you into debt? It’s probably more than just a feeling. Trust your instinct. Credit card companies are in the business of making money, your money. They’re not happy with customers who pay off their balance each month because they don’t make any profits. They even have a name for customers like that—“freeloaders.” Employees are paid to develop ways to boost their profits at your expense, and it’s all legal. One trick they use to get more of your money is to increase your annual percentage rate (APR), and they hope you won’t notice.

Universal Default Penalties
“… If the card holder is reported as delinquent on an account with any other creditor, we may increase the APR’s on your account up to the maximum Default APR.” This is referred to as the universal default clause and supplies a loophole for the issuer to raise your APR based on delinquencies on other accounts. Credit cards issuers can and will periodically review your credit report, hoping to find any excuse to raise your APR. The rationale is that they assume if you’re making late payments on other accounts, you pose a higher risk for all your accounts.

According to Consumer Action, a non-profit organization dedicated to advancing consumer rights, major issuers deny their use of a universal default policy. However, in their 2007 Credit Card Survey, Consumer Action surveyed twenty banks and found that more than half of the customer service representatives admitted to raising cardholder APR’s based on information in their credit reports. The inconsistency may be based on how “universal default” is defined. They’re just splitting hairs to mislead consumers. It is an unfair policy because credit reporting agencies aren’t perfect and they do make mistakes—credit reports can contain errors.

What you can do
First of all, avoid a card with a universal default clause if at all possible. Read over the terms and conditions of your contract so you know if it’s an option for the issuer. Know that most credit card issuers reserve the right to change the terms of the credit agreement at any time, for any reason. One black mark could cause you to pay hundreds in interest over time. Keep these points in mind:

· Be vigilant about your credit report and score—check it every year for accuracy

· Be selective when applying for credit

· Pay your bills on time, every time

· Don’t max out your credit cards

· Be aware of your APR’s



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