Many credit card issuers now use a nasty ruse to raise interest rates on outstanding balances. They impose a “universal default” clause in their agreements, allowing them to raise rates if you’re late with a payment to a third party. Reportedly, over one-third of all credit card companies have triggered this clause, which can be quite costly.
Suppose you overlook a bill from your phone company, or from any other company that reports to a credit agency. That credit report is now available to all your creditors, which can act to put the universal default clause into effect. Even if you have always paid your credit card bills on time, your interest rate might rise from, say, 5 percent to 25 percent.
It’s possible that your credit card issuer will give you a pass if you make such a slip, but don’t count on it. If you carry credit card balances, make sure that all your bills are paid well in advance of the due date. Better yet, pay off your balances so you stop making non-deductible interest payments.