It is a clause in many credit card agreements which states that if you are late on ANY credit payments, the credit card company reserves the right to increase your interest rate at any time without notice.
The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009 has softened the effects of universal default by limiting the balances that card issuers can raise rates on. Universal default policies were not, however, ruled out or made illegal by the CARD Act.
Defaulting on a credit card makes you look especially risky to your creditor. As such, they may want to lessen their own risk by limiting the amount of money to which you have access. If you default on a credit card, you may see your credit limit decrease.
The term “universal default” refers to a provision found in some credit cards' cardholder agreements. According to this provision, the credit card company is permitted to increase the interest rate on the credit card if the cardholder fails to make their minimum monthly payment.
It is thought that when a customer in dire financial straits defaults with one lender, the concept of universal default, and the subsequent interest rate increases, can create a vicious cycle which can cause the customer to default everywhere.
The Consumer Financial Protection Bureau suggests checking your credit reports once a year, at a minimum. Credit expert John Ulzheimer suggests a cadence of once a month. Until the end of April 2022, you can get your reports for free every week from the three major credit bureaus by using AnnualCreditReport.com.
The CARD Act requires issuers to apply payments that exceed the minimum payment to the higher balances first. But here's a catch: Creditors can still put the minimum payment towards the balances with lower interest rates.
Many lenders regard a settled default, as much less of a problem. So by repaying a defaulted debt you are more likely to get approved for a new loan.
The takeaway: Defaulting on a credit card bill isn't ideal, but you do have options. Just be sure to learn from this experience and start rebuilding your credit today – it's never too late!
In certain extreme cases, on top of damaging your credit reports, a default may land you in court. If you've had a loan in default for months or years without paying, your creditor may attempt to settle the debt by pursuing legal action against you.
Double-cycle billing is a method for calculating credit card interest in which the interest is applied to the average of the prior two months' outstanding balance. The practice was banned by U.S. Congress in 2009 through the passage of the Credit CARD Act.
TIP: If your interest rate increased because you were more than 60 days late in making a payment, focus on making on-time payments. If you pay your minimum amount on time for the first six consecutive months after the rate increase, the credit card company must reinstate the prior rate on your existing balance.
Credit cards charge interest and are primarily used for short-term financing.
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