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Summer School: Universal default

Financial summer school

TEXT OF STORY

Tess Vigeland: We do love our plastic. This week, the Federal Reserve reported that consumer debt rose by $14 billion in June. Uh oh!

Well, for today's summer school session, we're educating you on something called universal default. Here's personal finance expert Jonathan Clements to explain it.


Jonathan Clements: Pretty much every credit card company will boost the interest rate it charges on your credit card balance if you're late paying your bill or if you charge more than your credit limit allows or if the check you write to make your credit card payment bounces. All this is standard operating procedure, but lurking in your credit card agreement could be a potentially nasty surprise that's sometimes known as universal default.

Your credit card company may have the right to boost the interest rate it charges if, say, you're late making payments on your mortgage or even on another credit card. You can also trigger a higher rate by going over the credit limit on one of your credit cards, by applying for too much credit or any other event that dings your credit report. In other words, your credit card might charge you a higher rate because of something that happens on a totally different account.

As a consumer, if you trigger one of these change of terms or universal default provisions and the credit card company starts sticking you with a higher rate, what can you do? You can phone up and complain, but that probably won't do you much good. The best thing you can do is get that credit card balance paid off as quickly as possible or otherwise you might end up incurring interest rates that approach 30 percent.

All this is a reminder that America's financial institutions are keeping a close eye at your credit report, so it's critical that you pay your bills on time and you strive mightily not to carry too much debt.

You should probably also check your credit reports regularly. Once a year, you can get a free copy of your credit report from each of the three major credit bureaus by going to www.annualcreditreport.com. Think of it this way: Everyone else seems to be looking at your credit reports; Maybe you should too.


Vigeland: Jonathan Clements is the director of financial guidance for MyFi, an advisory service from Citigroup.

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