Youve probably never heard of it, but its in your credit card agreement contract. We all read that barely visible lengthy finely printed jargon, dont we?

Universal default refers to the credit card rule that allows a credit card issuer to raise your interest rate, at any point in time, if they believe that you are a credit risk. For example, if you pay late on credit card A, in addition to credit card A raising your interest rates, credit card B and C can also raise your interest rates. So how does the credit card company know that you were late on paying the bill for credit card A?

Your credit report tells all. Banks actively monitor your credit score to see, if your score has declined due to late payments, too many lines of credit, bounced checks, inquiries, etc.

It is estimated that approximately 44% of all credit card issuing banks have a universal default clause in their credit card agreement. This is an increase of 5% since 2003. The universal default clause has been in existence over the years but the rate at which banks are enforcing the rule has increased, in an effort to increase revenues. In addition, the universal default penalty has risen sharply and can land you an interest rate as high as 25%.

The scary fact is that you could buy a refrigerator at a 9% interest rate, only to find yourself paying an interest rate of 24.99% for the same purchase.

Here are some tips on avoiding the universal default penalty: