I love my credit card. It earns me a free round trip from Japan to the US about once a year. I charge absolutely everything on it to earn the miles. Each year when I receive the renewal notice and the $50 fee, I call the credit card company and politely ask them to waive it or I will have to change cards. Every year to this point, they have. I always pay off my balance each month – automatic deduction from my bank account so there is no chance the payment will ever be late. There are some great advantages that credit cards can provide if you remember to always pay of the balance. For those that don’t, credit cards are probably one of the worst financial instruments that you can use.
This is especially true with universal default. Universal default is a nice (fro the credit card companies) little clause that says that they can raise your interest rates for any number of reasons even if it has nothing to do directly with the credit card you have with that specific company. For example, if you accidentally make a late payment on credit card A, credit cards B & C may also raise your interest rates. About half of all credit cards use universal default.
There was a Consumer Action survey conducted back in July that shows exactly why card issuers enact the universal clause on their cards:
Credit score gets worse: 90.48%
Paying mortgage, car loan or other creditor late: 85.71%
Going over credit limit: 57.14%
Bouncing a payment check: 52.38%
Too much debt: 42.86%
Too much available credit: 33.33%
Getting a new credit card: 33.33%
Inquiring about a car loan or mortgage: 23.81%
Since it seems sneezing can effect your credit score these days, it doesn’t take much for 90% of the cards to have a reason to raise your credit card interest. I also find it a little humorous that having too much credit available will trigger universal default for 1/3 of the cards. They are the ones extending the credit and you would assume that they wouldn’t if you had too much credit available, but of course that would be assuming a bit too much.
It’s important to remember that no matter how wonderful the commercials make them seem, credit card companies are not your friend and are out to earn as much money off of you as they possible can. Universal default is a prime example of this. The credic cards can only make the universal default condition affect you if you carry a balance on their card. It’s your responsibility to learn to use credit cards to your advantage or pay the (high fee) consequences.