Things To Know About Your Credit Card

Did you know that even if you make your credit payments on time, any of your bank credit cards can automatically have the interest rate increased? Companies can also raise their rate of interest if you are late paying any of your other credit cards or even your utilities. They may also do this if they feel you are burdened with an excessive amount of debt.

This is the “universal default” clause and more and more credit card companies are using it. You can find this clause mentioned if you search the very fine print of the usual 3-4 page brochure you often receive.

It is now possible for financial institutions to monitor and track all your routine financial transactions. Lending institutions justify the universal default clause by claiming that the risk of the consumer repaying the debt has increased so it’s not unreasonable for them to increase the interest rate. How this reasoning works is simply beyond comprehension. If a person is having trouble paying off their debt, how is charging more money that raises their debt supposed to help?

Your Credit Score

If you are like most people, you probably aren’t aware of your credit score unless you applied for a loan and were advised of your numbers. Credit scores are also known as the FICO score. This has become an essential marker for consumers, and this information can be randomly shared with anyone who knows how to obtain it. Your FICO score will determine the rate of interest on loans, the rate you will pay for your life insurance, if you are eligible for a low interest mortgage rate, and the amount of money you are able to borrow.

Credit scores are decided by the use of five factors. The two most important factors involve the amount of money you currently owe, and your history of repayment on large debts. For the last 45 years, the credit score system has been making borrowing easier and makes credit obtainable by the average person.

Technology has greatly improved the effectiveness of consumer data collection. This is the information that is used by companies where you want to do business. The system is sometimes fraught with errors. This information is being shared among businesses, and most times it is happening without our knowledge.

How The System Works

Your spending habits are closely watched by one or more of the three big credit reporting agencies sometimes referred to as CRAs. They are Equifax, TransUnion and Experian. Each month creditors and banks send out credit files that contain such information as customer account numbers, outstanding balances, any collection action that has been taken, bill payment history and what type of credit they are carrying such as car loans, credit cards and mortgage loans. These files are sent to the CRAs to help calculate your credit score.

The disadvantage to this system is that you are dealing specifically with numbers, rather than with people. There are many reasons why people are late with payments, some as simple as not receiving a bill. The practices of credit card companies need to be reevaluated in light of the huge amount of debt Americans are currently carrying.