Avoiding The Grinch that stole your interest rates, the universal default clause   

     OK, it’s January, the Holidays are over and life has returned to normal. Unfortunately, the bills for all your holiday expenditures pile up on your doorstep at an astounding rate. Did you really need to buy that $65 bottle of Champagne that was gulped down by your in-laws in a plastic cup?  And were you in your right mind when you spent $200 on a gift certificate for the boss’s wife? 

     Well, in the throes of Christmas zeal you did, and your debts are unfortunately still valid – don’t brush them off even if you’re having trouble paying them. As we all know, a single missed payment can effect your credit for years in the future, and now they can present yet another hidden danger. I’m referring to the universal default clause, or the Grinch who stole your interest rates.

     Most consumers are unaware of a "universal default" clause that may be buried in the fine print of many of their credit card agreements. This clause basically states that if (for whatever reason) a payment to any creditor is received after 30 days of the due date and shows up on a credit report, the interest rate on your credit card could shoot up – even though you have a perfect payment record with that company.  How’s that for an unpleasant surprise?

     An example of universal default language could read something like

“All your APRs may increase if you default under any Card Agreement you have with us because you fail to make a payment to us or any creditor when due…”

     Few of us would catch the true meaning of this miniscule sentence, easily overlooking its control over your interest rates.

     The surprising catch is that it’s not just being late for big-ticket credit items like homes, credit cards, or vehicles that are being monitored, something as small as an overlooked phone bill or a forgotten dental bill can turn around and cause financial chaos. In other words it may be in your best interest to pay for those ‘free’ Cd’s you asked for but never got around to paying for - you may be jeopardizing your current interest rates and healthy credit history!

     Granted, these are not the types of credit card companies you want to maintain relationships with, but one false move and it may be too late! Unless you read those bulky credit card agreements that come periodically in the mail, you may never know what is lurking underneath the surface. Your 0% APR on your primary card (the one with the huge balance) could skyrocket into the 20+% range from one forgotten payment - to anyone - and there goes your budgeting for the year. Not to mention the blemish on your credit report that can rear its ugly head come your first home or refinancing.

     Of course, in an ideal world we would never carry a credit card balance, but many of us leverage our credit lines to manage our cash flow, receive perks and incentives (like frequent flyer miles) and juggle interest rates to save cash. After all, it’s the American way, and it is a great consumer edge if managed correctly.

      So how can you best protect yourself?                      

• Pay all of your debts well in advance of your due date. Follow up online or with a phone call to ensure the payments were received, on time. If for whatever reason a payment was missed, work promptly with your creditor to alleviate any potential damage – before the collection agencies are brought into the fold. Fixing credit problems is a daunting task best avoided and best caught before becoming a serious problem. 
  
• Keep a low fixed interest rate – and watch for universal default language hidden in the agreements. Try to keep an eye out for new additions or highlighted changes when credit updates are received in the mail.  
  
• Be wary of extremely low ‘Intro’ rates, they may introduce you to a low rate with a universal default bump possibility once the intro period ends.  
  
• Limit the number of credit cards you use. This will make it easier to track and maintain your relationship. Keep lists of all the pertinent info about your credit – balances, limits, due dates, etc. This way you can easily detect any changes.  
  
• Choose a creditor who responds to your needs on a personal level. Many will go out of their way to retain you as a customer.  
  
• Schedule bill paying electronically if it suits your lifestyle. But also monitor that the system is working – technology can often produce headaches of it’s own.  
  
• Don’t wait until the last minute to pay your bills – pay them as they come if at all possible. Don’t gamble with the mail system!  
  
• If you’re really stuck for cash, call your creditors and beg and plead for an extension – good credit will get you a long way, and most companies want to retain your business. Provided you’re not a chronic problem, they will often go out of their way to retain your customer loyalty, possibly by reducing your minimum payment or by waiving that months payment. Hey, you never know!

So stay vigilant with your debt load, and protect your credit, it will serve you for years to come!

Email us to learn more.

Seacoast Bauer Mortgage Group
(603) 430-7729
Toll free: (888) 252-2837 
Fax: (603) 430-0008
170 State Street, Portsmouth, NH 03801

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