What Is Universal Default on a Credit Card?
The universal default clause on a credit card states that there is a relationship between your credit cards and how you pay your other creditors. If you are late with a credit card payment, it can have a negative impact on your other credit cards.
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Significance
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If you have a credit card with the ABC Company and you always pay on time, the interest rate can increase if you make payments late on a credit card you have with the XYZ Company.
Considerations
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When you make payments late to any of your creditors such as a mortgage loan or automobile loan, your credit card company can increase your rate of interest.
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Credit Review
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Credit card companies will periodically review your credit file to see if your credit file has changed since they last approved you for credit. If it appears that you are a riskier customer, it can have a negative impact on your credit file.
Effects
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The late payments only apply to accounts that are 30 days late. Payments are not reported to your credit file until they are past due 30 days or more.
Prevention/Solution
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The universal default clause is in the cardholder agreement. Many people overlook this agreement because it's in the fine print.
Warning
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Going over your credit limits and having too much debt can also activate the universal default clause.
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