Understanding Universal Default
Universal default is a term that only recently came into vogue and it’s a big “gotcha” for balance transfer arbitragers because of it’s far reaching effect. If your card has a universal default clause, it means that if you are late on any of your payments to any other creditor and it is reported, they can immediately increase your interest rate without the typical grace period. Credit cards can already increase your rate arbitrarily but they have to warn you in advance and give you a period of time, 30 to 60 days, to react. With universal default, this can happen immediately (since it’s not a material change to your contract, it’s merely a clause that gets activated).
Universal default has to be a clause in your terms & conditions in order for this to apply and only a few card issuers have them as a standard. Recently (over the years I should say) there had been a lot of pressure for issuers to drop the practice and several of them agreed to.
- Discover, Chase, and American Express had UD clauses removed from T&C’s back in 2005 according to USA Today.
- Citi announced they’d be dropping UD, after making it optional (???), on 01 March 2007.
Balance Transfer Arbitrage » How To Analyze A Balance Transfer Offer Said,
December 1, 2007 @ 11:00 am
[...] default clause was popular with cards and then suddenly unpopular. Universal default is when they change your credit terms because you missed a payment elsewhere, even if it was not [...]