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If you have had a major credit card for any length of time, you are well aware that paying late causes trouble. The credit card companies don’t like to be paid late; no one does. If you make a late payment, even if it is just an hour late, you will incur a late fee. These fees often amount to $39 or more. Worse, the credit card companies often use the late payment as an excuse to raise your interest rate. Since the average rate is about 19% per year to begin with, credit card borrowing is now bargain. It becomes even worse if you give the company a reason to raise the rate to a higher figure, such as 30% per year. Most people who know this get stung once and then realize that it is not in their best interests to pay late again.
What few people realize is that sometimes, a late payment to anyone can trigger an increase in your credit card’s interest rate. How does this happen? Through a mysterious clause in your terms of service known as a universal default clause. What this clause says, in essence, is that if you make a late payment to anyone, and it shows up on your credit report, your credit card company has the right to raise your interest rate. It may not make any sense to the consumer; after all, why should making a late payment to the gas company cause the rate to go up on your Visa card? The credit card companies defend this, saying that any late payments to anyone suggest that you might be a greater risk to default to them in the future. The companies claim that they are simply protecting themselves. Is this legal? At the moment, it is, as there is no law that prevents the companies from raising your rates for making late payments. In fact, the credit card issuers may raise your rates at any time for any reason, provided that they notify you about it in advance in writing.
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