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.

Universal 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.

Banks 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:

- Late payment on a credit card, mortgage, auto loan or utility bill.
- Exceeding the credit limit on any credit card.
- Using 50% or more of your available credit limit on any of your credit cards.
- Having too many credit inquiries.
- Carrying too much overall debt.
- Getting a new mortgage, auto or personal loan.

How 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:

(1) Experian-"Inquiries Shared Only With You."

(2) Equifax-"Inquiries that Do Not Display to Companies."