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In order to decide whether to grant you credit for a car, a low interest mortgage or low insurance rates, your credit score is used to make this decision. All the financial transactions that you ever made are collected and stored in one of three databases. These three databases are maintained by Experian, Equifax and Transunion.

These three companies use this historical information about you and feed it to a computer. The computer reads in all the debt, payment history, credit card balance, mortgage balance, support payments, salary, age and many many other items to calculate a credit score. This is generally a number between 300 and 850. One interesting thing about this credit score is how it is interpreted. The number tells the creditors that you fit the profile of a random sample of people with the same score. This random sample of people is now used to predict your behavior on this particular loan you are applying for. If your score meets the profile of a good risk, you'll get the loan. If it meets the profile of a deadbeat, you're toast.

That's why getting your current credit score is crucial before making a financial decision. Why? Because in today's computerized scoring system, your credit score is updated on a regular basis. The reason is because the credit scoring model tends to become inaccurate with time. This time degradation is about 2 to 3 years. However, a much shorter time span occurs if your credit card issuer has the dreaded, "Universal Default" policy written on your credit card account.

What is the dreaded "Universal Default" clause? Well, think of it as follows. Picture an innocent, sweet young lady working her way through college. She studies diligently and turns in her assignments on time on all her classes. As a reward, she usually earns As and A++ in her classes. Consequently, she has a grade point average of 4.0. Perfect! She is fairly popular and has a few close friends. One day, a vicious rumor is started about her on campus. Someone has posted a nasty email about her on one of the sites on the web which happens to be very popular with most of the girls on campus. They read the email, noticed it was written about her and soon that email is all over campus. She doesn't notice it at first but then someone has egged her car and written foul language on the hood. "Who would do this?" she wonders. Later that day she discovers her locker has vandalized with the same foul language. Confused, she starts investigating and with the help of her friends they find out about the malicious email.

Get the picture? Good. Now lets take this same story and run it through the "Dreaded Universal Default" clause to see how it can affect your score. You have been using your credit cards for 10 years without any problems. You've always paid your balance in full and on time and you've never maxed out any of the cards. You know this is important because maxing out your cards works against you. Something to do with debt to credit ratio. You pay all your bills on time too. No sense in doing tomorrow what can be done today, you always say.

One day, you send in your payment for the cable bill and you continue with your day. A month later you get a letter from the cable company. In it they are notifying you that your account is past due and to please remit payment upon receipt of this letter. You're confused. You know you sent the payment in early as usual. What's going on? You check your banking account against the check number you made the payment with. That's strange. It hasn't posted yet. You call the cable company to get information and they tell you pretty much the same thing: they have no records of any payment. You call your bank and they repeat with words what you read on your computer screen.

You reluctantly make another check for the now over-due amount and walk to your mailbox. You open it up and there you have a letter from your credit card company. It says your interest rate has been raised from 8.99% to 17.89%!
"WHAT!?"

You call them up. You're tense and upset and your voice is quivering. You tell them there is some mistake with your account. It's never been paid late. You've had the account for over 10 years and you want them to fix the problem. After a few minutes, the customer service rep comes back on the line and tells you, "mam, there is no problem with your account. As part of our risk management procedures, we performed a regularly scheduled credit check with all three credti reporting bureaus and we found a LATE PAYMENT on your records. Our policy is to raise the interest rates of any account holder that has evidence of late payments in their credit bureau files."

You tell them that you've never heard of such a thing and it sounds absolutely ridiculous. How does a late payment to a cable company give you the privilege to boost my interest rate on my credit card. She comes back with the assuring tone that there is nothing illegal about the policy. It is explicitly written in your credit card agreement.

You're completely at a loss for words. "This doesn't make sense! I mailed my check a week ahead of schedule. Did it get lost in the mail? How can my credit card company use that as an excuse to raise the interest on such a timely paying customer as myself?"

In the following week you get another letter from your other credit card company informing you of their decision to raise your rates. It's exactly the same reason, "Universal Default" clause. You look in your purse and count...1,2,3,4,5. Five cards. "My God! What if they're all doing it?" You call the other three companies and ask them if your account falls under their Universal Default clause and you're shocked at their answer. "Yes"

All of a sudden, in one fell swoop your perfect credit score that took you 10 long disciplined years to build comes crumbling down in slow motion. Point by precious point gets chipped away as each credit card company finds about your late payment and adjusts your interest to reflect your newly unearned reputation as a "credit risk".

If you have a credit card agreement with this clause in it, you have to be extremely careful about paying EVERYTHING on time. If you don't you could easily get into this problem. About the best thing you can do is to determine which cards have this clause and carefully get rid of them. However, there is a right way to cancel an account and a wrong way. Do it the right way and your score isn't damaged. Do it the wrong way and...well...