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Credit card can be rife with hidden penalties, such as late charges and membership fees. Then there are
the changes that come without warning and seemingly without any reason.
Several banks include a statement called a "Universal Default Clause" in their contract with customers.
Under the clause, even if you pay one credit card faithfully on time every month, your credit card company
can still raise your interest rates if you miss payments with another creditor. To give an example: You
always pay for Visa credit card in full every month, but miss a few payments on your utility bill. Under
the universal default clause, Visa could raise your interest rates because you missed your utility
payments. It also means that if your credit score changes because of other factors, companies can use that
as a reason to raise your interest rates – even if you’ve never missed a payment with them.
According to most universal default clauses, banks don't have to warn you when they change rates, and you
can't appeal or challenge them. This practice makes it difficult for customers to ensure they are getting
the best rates when they sign up for a credit card. Critics say it becomes a bait-and-switch that allows
consumers to sign up under low introductory rates, only to suddenly find themselves paying much higher
rates because of factors that are sometimes out of their control.
Until the Credit Cardholders' Bill of Rights passes, experts say your best defense against the universal
default clause is to be a good creditor. If you always pay all your bills on time and never default on any
loans, credit card companies will have little cause to hike your interest rates.
You should always read the fine print on your credit card contract before signing it. Some banks have
renounced the practice of hiking fees or interest rates without warning, while others have recently
reinstated their universal default clauses. If the fine print isn’t clear, ask the credit card company
how they would handle a change in your credit score or any defaulted payments with other creditors.
It's always wise to shop around for the best credit card deal – not just the best rate, but also the best
terms and fewest hidden fees and exceptions as possible.
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