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Recently USA Today said that credit card issues are backing away from the “universal default” policy – which means that a late payment on a different credit card, mortgage payment, bounce a check, or a number of other things, it will raise the interest rate on your other cards too. This practice was started in the mid-90’s by creditors and has been used ever since. The article mentions four big lenders that are changing the way they use universal default or not using it at all – these were American Express, Discover, Chase, and Citi. It’s important to note that this is only a reduction in the use of this system… and unfortunately even though we’d all like to see it eliminated completely, it probably won’t happen. The Editorial Director at the non profit organization Editorial Director of Consumer Action, said “It’s a risk management tool they put a lot faith in. Lenders may be backing off, but I’d be surprised if they really stop using it.” An annual credit card survey recently found that nearly have of banks still have universal default policies.
Every year since 2003 Congress has considered bills to protect against practices such as this. Consumers have been fighting for the universal default rate to be outlawed and are trying to get the lawmakers involved. If you’re interested you should contact your representatives in Washington and voice your opinion. That may or may not happen, so it’s important to simply make at least the minimum payment on time for your bills to help prevent this from happening.