What’s a Universal Default Clause and How Does it Affect My Credit Score? – Episode #20

The Universal Default Clause and how it impacts your credit score is important. Let’s break this down. The word “universal” clearly implies some kind of wide scoping impact and here it means that your actions on one credit card can impact the policies on another card. What this does, at least for some folks, is accelerate the decline in their credit score. How?

Say you have two credit cards, Card A and Card B and you make the minimum payments on both but you miss a couple or you are late on Card A. Now, even if the interest rate on Card A stays unchanged, the card issuer of Card B gets this information on lates from your credit file and can use increase your rate on Card B. This makes it harder and harder for you to climb out of debt, and likely in this scenario, unless you find a way to pay down balances, your credit score will decline.

How can you stop this? If you are applying for new cards, check out the fine print before you agree to terms. According to Wikipedia, Citibank removed use of the universal default clause in 2007, but you will have to check with other credit card issuers to see their most up to date policy.

Remember, if you are married, you might have joint or authorized user accounts, so you have to remember to look at all of your cards to see if the universal default clause is impacting you.