Universal Default
Another Sleazy Credit Card Trick
By Daniel Muniz

Perhaps one of the sleaziest credit card tricks is Universal Default. In a nutshell, it means that the terms of your agreement can be radically altered at any time based on your credit worthiness whenever your creditor reviews your credit (which can be done on a weekly or even daily basis). In the past, creditors only cared about whether or not you had acceptable credit at the time you applied and afterwards, they didn’t care what happened to your credit situation as long as you made all of your payments to them on time.

But for many consumers, it is the unpredictability and volatility of the day to day changes to your credit that makes Universal Default so insidious. For creditors, it is a slick way to make a whole lot of money by gouging their customers with changing the terms of their credit on the sly.

The way that this works is that tucked away in the fine print of your credit card agreement is the permission you granted to your creditor to check your credit rating at any time.

On the surface, it is not that big of an issue because the credit inquiry that is typically done is an Account Review (AR). In the industry, an AR is known as a “soft” inquiry because it doesn’t negatively impact your credit score like the way a “hard” inquiry does whenever you apply for credit. Too many hard inquiries, especially bunched together in a short time frame, triggers all sorts of red flags but there is absolutely no negative impact on your credit score regardless of how many soft inquiries you may have at any time.
 

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Creditors routinely check your credit by performing an AR but the frequency varies wildly because of the different aims of what they have in mind.

Most creditors do an AR for marketing purposes. The easiest person for a company to hawk their wares to are the ones who are already their customers so your credit report is an easy way to determine whether or not you are suitable for a particular product which results in junk mail or in telemarketing pests calling you up.

But as the name implies, Universal Default means “any” activity on your credit by any trade line that is considered negative is cause for the terms of your agreement to be changed or your credit line even closed. And it is totally irrelevant if you have made all of your payments to that creditor on time and kept a low balance on your account. It is very much as if you are reapplying for your credit with that company on a daily or weekly basis.

In the course of years, anything can happen to your credit.

And it doesn’t necessarily mean that you have a negative item on your credit report such as a missed payment or a charge off from another creditor. You can still make all of your payments on time to every single account that you have open but just about anything on your credit report can be deemed as negative even though you haven’t done anything wrong. And that is the way that Universal Default is abused.

Creditors who are cruising your credit report on a daily or weekly basis is bound to catch something like an error or a temporary rise in your debt which will enable them to sock you with outrageous fees and obscene rates.

By its very nature, your credit is a very fluid profile that can change not only every day but every hour. It really doesn’t take very much to spike a score up or down because there are so many factors that can influence it on a day to day basis. And depending on the sensitivity that your creditors have set up with their Universal Default, the more opportunities you can have to trigger it. And to add insult to injury, the consumers who are the most vulnerable are the ones who are currently disputing an error on their credit report.

In essence, this is simply a back door approach to socking you with outrageous new terms especially when these creditors set up such broad sensitivities.

Your only recourse is not to do business with such unscrupulous companies. There are still plenty of creditors who aren’t cruising through your credit report every day looking for a way to trip you up. These honest businesses are only concerned on how things play out with your account and as long as you keep your nose clean and make all of your payments on time, they won’t play these stupid games with you.

Credit unions are a great place to look for credit card issuers.

Check out CreditUnionAccess.com for credit unions in your local area.

Interestingly, certain big banks are abandoning Universal Default particularly when irate customers decided to take their business elsewhere. Citibank is one such institution and a number of others have followed suit.

In summary, you don’t have to play these games with creditors. Avoid them and find more reputable credit card issuers who will treat you fairly.

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