You apply for a credit card that has an advertised 10% APR. The card is approved and you spend money on it. Some months later you notice that the interest rate cannot possibly be 10% APR but is nearer 30% APR. You immediately claim you have been cheated; but the credit card provider counters that they have invoked the Universal Default Penalty Clause under your agreement with them. Bewildered you wonder what on earth a Universal Default Penalty clause could mean. And the answer is:
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Chapter 22, the only entirely new chapter in this Second Edition, explores controversial policies of credit card companies that fail to report their card holders' credit limits to credit bureaus, a practice that can lower credit scores. It also examines credit card companies that practice "universal default, " meaning they will raise card holders' even if they've never had a late payment with that particular company.
Check Credit Rating Many customers apply for a card at a time when they have a good credit rating in the belief this is the one and only time the provider checks their credit score rating. In fact this is a mistake that could cost you dearly as the card provider will carry-out periodic checks on your credit score rating and will adjust the APR chargeable on your card upwards if there is any variation in your rating that indicates you have become more of a credit risk. The scary part here is that you may not actually have failed to repay any of your debt in the interim part, but merely by exposing yourself to additional credit the rating agency may have deemed that you are more of a credit risk. As such, the card increases your APR, you are now a 'high-risk' borrower!
Credit card providers are hiking up their penalty charges at a worrying rate, according to research.
Improve Credit Rating You fail to make a repayment
It was not clear how Capital One's practices could positively impact its customers' credit scores. But Capital One declined to discuss the issue with this author. Follow The Money The practice of not reporting credit limits must be viewed within the context of other industry trends. late 1990's, credit card companies gravitated towards "universal default" as an industry standard. Under universal default, any late payment — to a phone or utility bill or another credit card — or just carrying too much debt, was justification for credit card companies to raise cardholders' interest rates.
Credit Online Rating Report Cleverly a Universal Default Payment Clause does not mean that you have failed to make a repayment on that issued card - it can easily be the case that you have made a late payment on a completely unrelated card that invokes this. Again, the reason for this is your payment records are part of central system and if you fail to make a payment on time, you are, again, considered a 'high-risk' borrower. Consequently your APR jumps up!
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Credit Score Rating Scale You go over your limit
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Bad Card Credit Credit People If you go over your limit, even only minimally, on any consumer credit program you have in place, you'll suddenly notice your APR changes. Once again, you have suddenly become a 'high-risk' borrower - and it makes little difference if you claim this only happened once!
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Your income changes
Credit Rating Scale About the last thing you need to hear on finding out you have just lost your job is that you should be expecting to pay a lot more for the credit you have - but that's the fact of the matter. If your income declines, your APR will increase!
Bad Credit Rating Why is it important?
Credit Rating Agency The reason why a Universal Default Payment Clause is important is because it will apply a new APR to your entire balance outstanding - regardless of whether or not you bought the item in the belief you'll be paying the originally advertised lower APR. In other words, its doesn't only apply to new items you bought since the change in the APR. So, make sure you read you credit card application form carefully and review your monthly statements with a microscope to make sure that you haven't just fallen victim to the Universal Default Payment Clause APR surcharge!
Credit Rating Canada Joe Kenny writes for CardGuide.co.uk, offering the latest information on credit cards, visit them today for more best buy credit cards.
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Credit Score Rating Chart Joseph Kenny is the webmaster of the loan information site http://www.ukpersonalloanstore.co.uk. At the Personal Loan Store you can find some of the latest personal loans explained in detail.
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