You apply for a credit card that has an advertised 10% APR. The card is approved and you spend money on it. Some months later you notice that the interest rate cannot possibly be 10% APR but is nearer 30% APR. You immediately claim you have been cheated; but the credit card provider counters that they have invoked the Universal Default Penalty Clause under your agreement with them. Bewildered you wonder what on earth a Universal Default Penalty clause could mean. And the answer is:

Credit score rating

Many customers apply for a card at a time when they have a good credit rating in the belief this is the one and only time the provider checks their credit score rating. In fact this is a mistake that could cost you dearly as the card provider will carry-out periodic checks on your credit score rating and will adjust the APR chargeable on your card upwards if there is any variation in your rating that indicates you have become more of a credit risk. The scary part here is that you may not actually have failed to repay any of your debt in the interim part, but merely by exposing yourself to additional credit the rating agency may have deemed that you are more of a credit risk. As such, the card increases your APR, you are now a ?high-risk? borrower!

You fail to make a repayment

Cleverly a Universal Default Payment Clause does not mean that you have failed to make a repayment on that issued card ? it can easily be the case that you have made a late payment on a completely unrelated card that invokes this. Again, the reason for this is your payment records are part of central system and if you fail to make a payment on time, you are, again, considered a ?high-risk? borrower. Consequently your APR jumps up!

You go over your limit

If you go over your limit, even only minimally, on any consumer credit program you have in place, you'll suddenly notice your APR changes. Once again, you have suddenly become a ?high-risk? borrower ? and it makes little difference if you claim this only happened once!

Your income changes

About the last thing you need to hear on finding out you have just lost your job is that you should be expecting to pay a lot more for the credit you have ? but that's the fact of the matter. If your income declines, your APR will increase!

Why is it important?

The reason why a Universal Default Payment Clause is important is because it will apply a new APR to your entire balance outstanding ? regardless of whether or not you bought the item in the belief you'll be paying the originally advertised lower APR. In other words, its doesn't only apply to new items you bought since the change in the APR. So, make sure you read you credit card application form carefully and review your monthly statements with a microscope to make sure that you haven't just fallen victim to the Universal Default Payment Clause APR surcharge!