Is the Controversial Credit Card Universal Default Clause Finally on the Way Out?
By Nancy Castleman, CardRatings.com Consumer Reporter
USA Today reported the other day that credit card issuers seem to be moving away from the practice of "universal default" -- where one late payment on a credit card or bill can raise the interest rate on a person's other credit cards -- as well as the cost of future mortgages, car loans, and insurance policies. (That's in addition to any fees that might have to be paid on the original late payment.)
The article sites four major lenders who are either not using universal default or are changing how they do use it: Citibank, Chase, Discover, and American Express.
While the end of universal default would be very welcome news to cardholders and consumer advocates everywhere, unfortunately, that may not be what's going on. For example, Linda Sherry, the Editorial Director of Consumer Action, the highly respected nonprofit advocacy organization, advises us not put too much stock in the notion that universal default is going away any time soon:
In fact, Consumer Action's annual credit card survey found that almost half of banks have universal default policies, where rate hikes can be triggered by more than just late payments. It might be because someone's credit score got worse for unrelated reasons, say a bounced check, too much debt or credit, going over the credit limit, and even shopping for a car loan or mortgage.
Change May Be in the Offing
There are some recent developments that give consumer advocates reason to hope that the practice of universal default can be curtailed. For example, there are at least three separate bills wending their way through the House and Senate that would prohibit universal default. Consumers who would like to see this practice outlawed should let their Senators and Representatives know now.
Interested? To contact your elected officials in Washington, click here, enter your zip code, hit enter, and you'll see all the contact information you will need, including the appropriate email addresses.
In the Meantime
Whether lenders change their universal default policies at all, and whether they do it voluntarily or due to legislation, there is no doubt that our credit reports and credit scores will continue to be used by lenders, employers, landlords, and insurers. To make sure you get the best possible outcomes when you are shopping for a credit card, mortgage, job, apartment, or insurance policy, heed this important advice from Consumer Action's Linda Sherry, whose number one tip is: pay your bills on time.
Linda sums it up well. Click here for more tips on what you can do to avoid interest rate hikes.
We welcome your comments about credit card issues in our popular credit forum!
Nancy Castleman has spent 20+ years helping people get out of debt, save money, and live better on less. Along with her partner, Marc Eisenson, Nancy is known for her work on mortgage pre-payment, and for first explaining "credit card math" in her often acclaimed free e-letter, The Pocket Change Investor. Find it, along with many articles from back issues, special reports, link picks, and book reviews, on her Good Advice Press Web site. You can also see pictures of her 10,000 sq ft organic garden and her nine grandchildren!
But what she'd most like you to do is read about her book, Invest in Yourself(Wiley, 1998, 2001), which she wrote with Marc Eisenson and Gerri Detweiler. Nancy considers this book, which discusses how to invest your time, energy, and money to create the life you want, to be her life's work. Nancy's books have received rave reviews in leading national publications, including USA Today and Money Magazine.
CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.
Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thanks for your interest!
USA Today reported the other day that credit card issuers seem to be moving away from the practice of "universal default" -- where one late payment on a credit card or bill can raise the interest rate on a person's other credit cards -- as well as the cost of future mortgages, car loans, and insurance policies. (That's in addition to any fees that might have to be paid on the original late payment.)
The article sites four major lenders who are either not using universal default or are changing how they do use it: Citibank, Chase, Discover, and American Express.
While the end of universal default would be very welcome news to cardholders and consumer advocates everywhere, unfortunately, that may not be what's going on. For example, Linda Sherry, the Editorial Director of Consumer Action, the highly respected nonprofit advocacy organization, advises us not put too much stock in the notion that universal default is going away any time soon:
"It's my sense that lenders are backing off from it. But I'd be amazed if they really stop using it. It's still a risk management tool they have a lot of confidence in."
In fact, Consumer Action's annual credit card survey found that almost half of banks have universal default policies, where rate hikes can be triggered by more than just late payments. It might be because someone's credit score got worse for unrelated reasons, say a bounced check, too much debt or credit, going over the credit limit, and even shopping for a car loan or mortgage.
Change May Be in the Offing
There are some recent developments that give consumer advocates reason to hope that the practice of universal default can be curtailed. For example, there are at least three separate bills wending their way through the House and Senate that would prohibit universal default. Consumers who would like to see this practice outlawed should let their Senators and Representatives know now.
Interested? To contact your elected officials in Washington, click here, enter your zip code, hit enter, and you'll see all the contact information you will need, including the appropriate email addresses.
In the Meantime
Whether lenders change their universal default policies at all, and whether they do it voluntarily or due to legislation, there is no doubt that our credit reports and credit scores will continue to be used by lenders, employers, landlords, and insurers. To make sure you get the best possible outcomes when you are shopping for a credit card, mortgage, job, apartment, or insurance policy, heed this important advice from Consumer Action's Linda Sherry, whose number one tip is: pay your bills on time.
"This is something that impacts consumers in a really really big way. Don't go on media reports that universal default is going away. All the risk management policies used by companies today include credit reports. Make sure yours is clean -- there may be some errors on it. Don't even allow your life to go into the direction in where your credit report gets tarnished -- it could really seriously hurt you."
Linda sums it up well. Click here for more tips on what you can do to avoid interest rate hikes.
We welcome your comments about credit card issues in our popular credit forum!
Nancy Castleman has spent 20+ years helping people get out of debt, save money, and live better on less. Along with her partner, Marc Eisenson, Nancy is known for her work on mortgage pre-payment, and for first explaining "credit card math" in her often acclaimed free e-letter, The Pocket Change Investor. Find it, along with many articles from back issues, special reports, link picks, and book reviews, on her Good Advice Press Web site. You can also see pictures of her 10,000 sq ft organic garden and her nine grandchildren!
But what she'd most like you to do is read about her book, Invest in Yourself(Wiley, 1998, 2001), which she wrote with Marc Eisenson and Gerri Detweiler. Nancy considers this book, which discusses how to invest your time, energy, and money to create the life you want, to be her life's work. Nancy's books have received rave reviews in leading national publications, including USA Today and Money Magazine.
CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.
Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thanks for your interest!
posted by CardRatings.com at 12:12 PM
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