ICFE eNEWS #08-23 - November 13rd 2008
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Credit Card Holders Beware: Because Universal Default is Now in Stealth Mode

San Diego, CA - ICFE issues a warning to all credit card account holders in America. The credit crisis may now affect you in ways you never dreamed of because Universal Default is now reappearing in stealth mode. Universal default, you might be asking yourself, what is that? Universal default is the term used by issuers who look at their cardholder's history with other creditors to take an adverse action against their own borrowers. It is being revived by lenders who are looking for methods to ward off bad accounts and at the same time these adverse actions result in increased fees which lenders are using more frequently to off-set those mounting losses.

New offers for credit are being drastically curtailed. Charge-offs are increasing among card issuers across the board. Banks, the major issuers of Visa and MasterCard, American Express, Diner's Club and department store credit cards like Target and Macys are all reporting increasing delinquencies and thus being forced to write-off more and more bad debt.

The New York Times reported that lenders wrote off an estimated $21 billion, (yes that is billions with a B), in bad credit card loans in the first half of 2008 as more people defaulted on their payments. Options used by borrowers before to pay down credit card debt, such as home equity lines or being able to transfer balancesto a new card have disappeared.

This retreat from new credit offers and expanding lines of credit is even affecting creditworthy consumers. Gone are the low-ball teaser rates and zero percentage rate balance transfer offers. Lenders have been tightening their standards for new account holders and to combat the still rising tide of negative accounts, managers are looking for ways to identify their present account holders ahead of time who might be headed for trouble and thereby lessen their losses. Some major card issuers are closing down inactive accounts and reducing lines of credit. Gone too are the generous rewards programs as more and more lenders cut corners to save money.

Some of these changes can instantly put a consumer in the "over-limit" category prompting new and somewhat expensive fees. These actions can also be detrimental to one's credit score which can result in a borrower having to pay higher interest rates on other current loans outstanding and any new loans that may be originated.

Some major lenders don't mention Universal Default in their initial credit offers, but often add it a few months later with a "notice to cardholders" included with their monthly statements. Tactics utilized under Universal Default include scanning credit files for any late payments, looking for those who are maxed out on any accounts, or payments made to any creditor with a check not honored by the bank and, of course, any liens or judgments against the property.

If the cardholder is a homeowner in a high risk market where home prices have fallen 25 to 30 percent, like San Diego and Las Vegas, their credit card accounts might be flagged for even closer scrutiny, like two or three times a month, in order to spot any trouble or delinquency earlier rather than later.

A cardholder who is close to being maxed out, even within a thousand dollars of their credit limit, risks having a lender lower their credit limit without notice, increase their minimum payment, and increase their interest rate on the outstanding balance by two or three percent.

The US Department of the Treasury has created the "Bad Credit Hotel" an online game which teaches the basics of maintaining good credit and explains things like credit scores, credit history and debt management techniques. Visit ControlYourCredit.gov

Consumers who are carrying larger balancesnearing 75 to 80 percent of their credit limits are advised to quit spending and start paying down the balances. This may be a hard adjustment for some who are already stretched to the limit because they will need to start paying cash (again) for such basic needs as gas and food.

Consumers are encouraged to read carefully the rate, fees and other cost information included with any credit card offer and especially a section titled: "Other APRs". Listed among them are the cash advance rate, the default rate, the over limit rate, the closed account rate and the overdraft advance rate.

First time credit users and sub-prime borrowers are cautioned to read all initial credit offers very carefully. Such things as annual membership fees, a one-time acceptance fee, optional additional card fees and a one-time first credit limit increase fee among others.

Default prevention is easy. Pay all monthly obligations, at least a week or more ahead of the payment due date. Many lenders and service suppliers, such as utilities, are placing reminder notices in or on the cardholders' monthly statements. They encourage consumers to have payments reach their offices, not on the due date, but in time to have the payment processed and posted to an account before the due date.

Fixing it is not so easy. Once a negative hits a credit report, the damage is done. To get it removed, a consumer must convince the creditor the problems lie elsewhere and that the consumer is not at fault for a payment being recorded as late. Usually cardholders lose this argument, unless they send their payments certified mail and can actually track the date of receipt. Absent any sort of proof your payments were delivered on time to the creditor, borrowers will be paying higher interest rates and other fees, perhaps for years to come.

If you are experiencing difficulty with your credit record or with making all of your payments on time, there is help available on spending, credit reports, credit scoring and credit repair from the ICFE.

To improve spending techniques visit the ICFE's web pages and take the interactive spending quizzes - "Are you a good spender?" and "The Over Spenders Quiz.". There are also guidelines on improving spending including ways to save on household and grocery items.

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About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

 
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