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60 Second Savings: Avoid the Universal Default Penalty

Beyond the immediate fees, paying your bills late may lead to much higher interest rates.

If you've missed a loan payment like your mortgage, car or credit card payment, be aware that other lenders are watching and taking careful note.

It's no secret that being late paying your bills effectively lowers your credit score, but what you may not know is that your other credit issuers may then change the normal terms on their loans to what's known as the universal default terms.

Why? Because you're essentially now a less desirable -- and more risky -- borrower.

Unfortunately for you, the default terms include higher interest rates, and (surprise!) close to half of today's credit issuers have this provision in their member agreements. It's in the fine print.

Borrowers can expect an expensive domino effect to follow, experts say.

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lenders find negatives on other credit cards or other credit-related payment, they reserve the right in your terms and conditions to dramatically raise your interest rate on that specific credit card," says Adam Levin, CEO of "And make no mistake, once one does, they'll all look at your credit report from time to time and they will all start to do this."

To avoid raised rates through the universal default penalty, make sure to pay your bills on time. Don't go overboard on your credit limit and avoid making too many credit inquiries, which, over time, may lower your credit score.

And as always, read the fine print. Know if you're under surveillance for the universal default penalty before you fall victim.

To view Farnoosh Torabi's video take of today's segment, click here.

Farnoosh Torabi joined TV in July 2006 as the site's first official video correspondent. Previously, Farnoosh was a business producer and on-air reporter for NY1 News, Time Warner's 24-hour news channel in New York City. Farnoosh is a regular columnist for AM New York and has written for Money, Time, New York Daily News and Newsday. Farnoosh is a graduate of Pennsylvania State University, with a degree in Finance and International Business and holds a M.A. from the Columbia School of Journalism.