Universal default is a very bad thing (for you) unless you're a credit card company, which you'll be asking yourself "How did we pull that one off?"

Universal default is the term for a practice in the financial services industry for a particular lender to change the terms of a loan from the normal terms to the default terms (i.e. the terms and rates given to those who have missed payments on a loan) when that lender is informed that their customer has defaulted with another lender, even though the customer has not defaulted with the first lender.

Basically, it means that under your terms and conditions of your credit card agreement that you received from your issuer, if you have another credit card that you've defaulted on, another creditor could look at your credit report and instantly apply universal default to your credit card which will raise your interest rates dramactically. It won't matter that you have perfect credit with that credit card; if they have universal default stated in the agreement, they will enforce it and the consumer's struggles become even worse. What usually happens is that a consumer will get caught in a vicious cycle where in a matter of months the minimum payment on all credit cards skyrocket. What once was affordable is now out of reach.

Explaining your situation with your credit card issuer usually is not helpful. Even if the universal default is applied due to fraud on another credit card the other credit card company has no obligation to remove universal default and reduce your rate back to the original level. Most of this process is automated anyway so there's not a lot a representative on the phone can do.

The growing use of this technique is one of the most controversial trends in the financial services industry.

Many times an credit card issuer will not have universal default stated in the original agreement but under the terms and conditions of the agreement that can be changed without warning. Often times the credit card companies slip in an addendum to your agreement in the monthly statement mailings that add universal default to your account.

If you enter into a credit card agreement, make sure you read your agreement carefully! Your financial future depends on it.