Universal default is when a credit card company suddenly increases the interest rate on your debt because you made late payments to other credit card companies or your other bills. That is even if you paid the particular credit card company on time.
According to the credit card companies, this practice is based on analysis of the borrower's credit rating.
In effect, if you are in a financial situation where you are having difficulty meeting all your due payments, credit card companies feel that you are a greater risk. They then unceremoniously increase their interest rate on your cards. You, therefore, find yourself facing an even larger debt.
What is the logic in that?
Well, according to a report by Richard Dalton Jr. at Newsday.com, a bill underway in the US Senate and Assembly wants to make universal default illegal.
This is a development that bears watching. It will definitely have a great impact especially now that debt problems are rampant.
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