Universal Default

What is universal default?

Universal default is a policy of certain lenders that permits them to punish borrowers who pay any creditor late, bringing about a drop in the customer's credit score. Universal default is generally regularly utilized with credit card companies and is disclosed in the fine print of their contracts with customers.

More profound definition

With universal default, a lender changes the loan terms from the customary terms to the default terms. This might incorporate raising a cardholder's interest rate for making late payments on different debts reported to the credit bureaus. Or on the other hand, a lender can reduce the customer's credit limit — even close their account.
The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009 has mellowed the effects of universal default by limiting the balances that card issuers can raise rates on. Universal default policies were not, in any case, precluded or made unlawful by the CARD Act.
Should a card issuer climb a customer's interest rate, the higher rate will be applied exclusively to new balances. The customer is given 45 days to pay the current debt in light of the old agreement.
The CARD Act further states that card issuers can't increase the interest rate on a balance except if the cardholder has not made any payment following 60 days.

Universal default model

John has two credit cards, an American Express card and a Visa card. He paid for home improvements utilizing his Visa card, however either paid late or failed to pay for quite some time. The issuer of his American Express card sees John's remiss payment propensities and his falling credit score and hikes the interest rate on his card since John is currently viewed as a high-risk borrower.
John returns and peruses the fine print of his credit card agreement and finds out about the universal default terms and policy. He currently comprehends how his flighty payment propensities hurt his credit history and cost him more money. John focuses on making on-time payments, fixing his credit score and perusing the subtleties of his credit card agreements.

Features

• Consumer protection forces limits on the manner by which companies can issue such rate increases.
• It gives credit card companies the right to raise their interest rates on the off chance that the customer defaults on any of their loans, including those from different lenders.
• Universal default is a provision found in some credit card contracts.