Many credit card users probably aren’t aware of the “universal default” clause that is commonly found in the fine print of most credit card agreements these days.
The universal default clause basically states that if you, the cardholder, are late on any monthly payment, you could be deemed high-risk, and the APR on any unrelated credit card accounts could rise.
So if a borrower fails to pay an auto loan on time, their credit card with a 0% APR 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 of 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 late 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-rate or fixed-rate credit cards to reduce their monthly finance charges and interest paid.
After all, it would be quite a shock, not to mention financially damaging, to lose the status of your 0% APR credit cards overnight, only to end up with large credit card balances set at 20% APR or higher.
The CARD Act Partially Banned Universal Default
Thanks to the passage of the CARD Act in 2010, credit card issuers can’t raise APRs on existing balances unless the cardholder misses two consecutive payments (60 days past due) and is given a 45-day written notice. So this protects the balances you already have outstanding unless you really mess up.
However, they can still raise APRs on future purchases for just about any reason, so long as they give you a 45-day written notice. If this happens, you’ll probably want to stop using that credit card immediately.
If you are delinquent and the APR on your existing balance goes up, you may want to move the debt to a different credit card via a balance transfer, or pay it off in its entirety, if possible.
Remember, they are now required to give you advance notice so that would be the ideal time to make other arrangements.
At the end of the day, as long as you always manage your bills and make sure everything is paid on time there shouldn’t be a problem.
If you still make payments via conventional snail mail or even over the internet, make sure you have ample time before the payment due date to ensure it posts to your account!