We all know it’s important to pay your credit card bills on time every month. It’s become common knowledge that credit card companies have the authority to raise your interest rates immediately if you are even one day late on a payment. You don’t have to read the fine print to know this – everyone’s already heard the horror stories of interest rates jumping from 11% to 25% overnight because of a minor oversight.

Now credit card companies are exercising their authoritative muscle in an even more extreme way. They have the right to view your credit report monthly and penalize you for ANY late payments – including late phone bills, car payments, mortgages, etc. – thanks to the Universal Default Clause. And we’re not talking about a light increase – rates can be increased to as much as 29.99%. Outrageous. This sounds so completely illegal, but it’s not. Legal, but still evil, in my opinion. The clause is often buried in the fine print of the credit card agreement, and even when consumers do see it, they often don’t fully understand its implications because of the complicated terminology. (To rationalize this nonsense, credit cards execs claim that they are only protecting themselves when they believe that the risk of repayment has been increased by a customers late payments.)

We, as consumers, don’t have to be at the mercy of the credit card companies. Here’s what we can do:

1. Pay your bills on time. This seems obvious, but it’s good to mention. I try to pay my bills once they arrive. That way, they are taken care of immediately, and I’m not tempted to spend money on other things – leaving my budget tight when they are actually due.

2. Read the fineprint. Beware of taking out any new credit cards with the Universal Default Clause, and find out if the cards you currently carry have a universal default clause. Instead of canceling a card altogether, consider transferring your balance to a card without this clause. Canceling credit cards can sometimes negatively effect your credit score. (Seems, ironic, huh?) . Also, if you do apply for a new credit card, make sure the card you receive is the card you applied for. If you don’t qualify for the card your originally applied for, they may send you one with “comparable” terms. Be wary. Keep records of all cards you apply for to compare to cards you receive.

3. Check your statements regularly. This also seems pretty obvious, but it is surprising how many people don’t even look at their statements. If they do, they are often only looking at what charges have been applied, not the interest rate.

3. Check your credit report annually. This is a good practice anyway. It’s good to know what kind of credit you have, what your interest rates are, your credit score, etc. This is also important in preventing identity theft.

Do keep in mind, not all credit card companies are all bad. Kudos to Citibank, who has done away with a universal default clause altogether. Maybe we should all transfer our balances and see how well the other companies do without our business?

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