Customers are terrified to think about default rates on their cards. Though people do their hardest to be on time with their payments, there's no guarantee that you cannot default on your plastics in future. Now that some card issuers raise default rates, these rates can be really outstanding. And nowadays, late payments may end up in huge rates on your card. But still, it's not as awful as the practice of universal default that some companies still use. When you receive a mailing from your lender saying that they will raise your APR if you default on the card, what is actually meant by this "default"? Let's try to figure it out!

Millions of US credit users receive mail from credit issuers, but there are few people who dare to read these letters from cover to cover. Unfortunately, most lenders send incoherent mailings written in the style of your credit card agreement, they lack for exact wording and it's next to impossible to catch the main idea.

If your lender informs you that it will penalize you for making late payment or exceeding credit limits, it doesn't necessarily mean that your credit card agreement contains a universal default clause. However, you'd better check this information in your credit agreement. These days, creditors are moving away from this practice, but there is a catch here.

Faced with ever-increasing credit delinquencies, major credit issuers started penalizing their customers late on payments by setting maximum default rates of 30%. Even cardholders with a good credit are not protected against default interest hikes on their credit accounts.

It's totally unfair and unfortunately, customers are helpless to do anything about these changes. Interestingly, card companies that promised to quit universal default practice, raised default rates on their cards up to 30%. As the saying goes, out of the frying pan into the fire.

Financial analysts give an explanation to these interest hikes. During the recession, the usury ceilings in some states were eliminated so that lenders and banks may feel free to set any rates they deem appropriate, or better to say high enough credit card rates to keep their business profitable.

Consumer advocates get more than 50 complaints from credit cardholders, and it's all about interest-rate hikes even if customers have flawless payment history. And somehow, departments and agencies have no authority to do anything about this situation.

Meantime, the Fed Reserve proposes that credit cardholders get a notice of the rate hike of 45 days. Another proposal is the option to cease credit card activity and retire the balance at the ongoing interest rate. But banks do not bother to give any notice and some default rates hike to the last billing cycle.

If you consider that default APRs on your card are so high, you should be very careful with your credit card payments. Once you feel that you will not be able to make the payments on time, call the customer service and try to settle this problem. All the more so, when you notice interest-rate hike, get in contact with your lender at once. The chances are great that you may dispute this hike.

Share Opinion: