Most all the bank credit card companies will raise the interest rate when a consumer is late on their monthly credit card payments on other accounts not related to the issuing credit card company. This increased credit card rate is known as universal default or the universal default rate.
Defaulting on a credit card is not uncommon when unemployment rises and consumers may be struggling to pay their bills. When a credit card holder becomes past due on their account, one of the first actions by the credit card company is to a levy a late payment fee on the account and raise the credit card rate. Credit card companies raise credit card rates when it has reason to believe that the risk of being repaid by the customer has increased.
This risk of credit card repayment to the card issuer may be clearly evident when that consumer falls behind on more than one monthly credit card payment with their bank credit card company. However, the credit card rate may increase even if the account holder has been making their credit card payments on time.
When the credit card company establishes the default credit card rate or credit card APR they generally evaluate the seriousness or timing of any delinquency or late payments currently on the credit card they have issued or other accounts the account holder may have with that company as well as from information obtained from consumer credit reports obtained from the three major credit reporting agencies.
The credit card companies’ right to raise the interest rate starts with the credit card agreement that almost always contains a provision which states the credit card applicant authorizes the credit card company to obtain a current credit report along with verifying income and identification to open the account. The agreement also contains a clause that authorizes the credit card company to obtain credit reports on the applicant when needed to service and manage the account.
Essentially, the credit card agreement allows the credit card company to raise the rate if a card holder is delinquent on another credit card or on a mortgage payment or if only because the bank has concluded that the card holder has taken on too much debt. In addition, some credit card agreements clearly state that the default credit card rate will be imposed if the account holder exceeds their credit card limit whether or not this is in conjunction with late payments or excessive credit card debt.
A standard universal default clause may read that the default rate will be imposed on the first day of the billing cycle in which the default occurs if; the account holder defaults on their account or any other account you have with the credit card company; other indications of account usage and performance; information about your other relationship(s) with the credit card company or any of their related companies; and information the company obtains from consumer credit reports obtained from credit bureaus.
Some banks and credit card companies may, in fact be willing to reduce the higher default rates if the account holders’ credit history does improve, although the rate reduction from the universal default rate may not be a slow as to the original credit card rate.
Tags: bank credit card, credit card, credit card APR, credit card company, credit card debt, credit card limit, credit card payments, credit card rate, credit reports, default credit card rate
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