Credit Card Universal Default – Like Vultures On Fresh Road Kill
Posted on June 15th, 2007 by Marc Chase Posted in Credit Cards | 8 CommentsFor most people and probably all of our clients, beating the credit game sure feels like your swimming up stream sometimes doesn’t it?For those of you who haven’t heard of something called Universal default, I suggest you learn it real fast. In my opinion it’s one of the sleaziest tactics credit card companies have in their arsenal and unfortunately, it’s also one of the most expensive traps you can fall into.
Here is how it works. If you are late on any of your payments, i.e. cars, other credit cards, mortgages etc All of your credit card companies can raise their rates (sometimes triple) because they perceive you as a high risk now.
For example; if you are late one time on your discover card, you could see your Amex, Visa, Capital One and Providian cards go from 9% to 28% intantly.
Now ask yourself two things – 1) How many credit cards to you have? 2) Can you afford to have all of them triple their interest rate on you?
Bankrate.com has a pretty startling little scenario of the impact this could have. In their scenario a late pay on one card could add an extra 1575.00 to your payments. Imagine having 5, 6 or 7 cards all increase.
What’s the point? Credit card issuers make more money of people with bad credit and higher interest rates. They are watching and waiting like vultures for each and every one of you to slip up even once…then they got you.
You must be vigilant in paying your bills on time. Make schedules, tattoo it on your foreheads, name your child “my visa bill is due” Do whatever you have to do to NOT give the credit issuers what they’re hoping for….more of your money.
“Like vultures” is a good description! Businesses making money is one thing; being greedy and cold about it is quite another.
Again helpful information Marc.
Thanks.
Somebody has to do something about all these things. When were late they treat us like were murders. The reality is that they are getting away with murder and it stinks
Great post, being in the industry myself I see this unscrupulous practice first hand. I have seen this happen to people and it can be like the credit card companies dropping the trap door and breaking your neck (bank account). Universal default is like the legal right to steal, and the excuse the credit card companies give these people is that they are trying to make sure they get their money back. But when this happens over 75% of your minimum payment is going towards interest and not principal. If they really wanted their money back they would of dropped your interest to zero, but they do the exact opposite. I like to call this situation the “credit treadmill” and its right where these card companies want you.
Thanks for this post - universal default is definitely a sneaky and little-known tactic. It’s really unfortunate that there aren’t more protections in place for average consumers, because with every new trick the credit industry develops, more risk and burden is put onto the consumer.
Our economy can’t thrive forever if we keep burdening consumers with this level of risk.
Back in April of this year there was a Congressional Senate Sub-Committee hearing, in which they addressed all of the sneaky tactics used by the credit card industry. The only company that said they would stop using universal default was CitiBank, however this has yet to be seen. Then about two weeks ago, Federal Reserve Chairman Ben Bernanke had a hearing speaking with Congress about our economy and other monetary policies. He spoke about a few reforms he suggested to Congress.
One was that the credit aggreement would be written in a manner that is a lot more easy to understand, and that it would highlight and possible charges and interest rate increases.
Another reform that was mentioned was that the credit card companies would have to give the consumer a 45 day notice prior to increasing their interest rate.
I hope these suggested reforms get passed into law, I feel they would greatly help. But there is still more that will need to be done, however these reforms would be a great start.
That’s amazing. I need to build credit, and was considering using a card to do so, but stuff like that scares me. Thanks for the great post.
Jeremy if you are going to use credit cards to build credit you must do it the right way. DO NOT run a balance. My best advice would be to get one card to start with, charge $20 a month on it and pay it off every month in full. This will start to build you a credit history, and it does not matter that you only charged $20 instead of a lot more, you just need to show a good positive payment history. As time goes one after usually 3-4 months of good payment they will begin raising your credit limit, which is good as long as you continue to not run a balance. The more available credit you have the better your score will look. The most important thing though is do not run up your balance or you could be stuck in a situation like the one in the post. Good luck I hope that helps you out a little bit
Thank you for the advice!