Universal Default
Many credit card holders aren’t aware of the “universal default” clause that is commonly found in the fine print of many credit card agreements these days. The “universal default” clause basically states that if you, the borrower, are late on any monthly payment, you could be deemed high-risk, and your APR on an unrelated card could rise.
So if a borrower fails to pay an auto loan on time, their credit card with a 0% introductory offer could suddenly shoot up to 20% with little or no warning. After all, it makes sense that a creditor would want to protect itself if it deemed one it’s borrowers high-risk. Why should a creditor offer a borrower excellent credit terms if they aren’t paying all of their bills on-time?
This clause is definitely something that shouldn’t be taken lightly, as any emergency or mistake that causes just one derogatory payment could result in thousands of dollars in interest. This is especially important to consumers with a large amount of revolving debt that rely on low-APR credit cards to reduce their monthly liabilities and interest paid.
In the future, it’s likely that every card member agreement will carry this type of clause, and every consumer with a high number of loans and/or credit cards should take precautions, whether it be an automatic payment plan or a credit management software tool.
It could be quite scary, and financially damaging to lose the status of your 0% APR credit cards overnight, and end up with high balances paying 20% APR or greater. So always manage your bills and make sure everything is paid on time. And if you pay through conventional snail mail or over the internet, make sure you have ample time before the payment due date for the payment to post to your account!