What is an Universal Default?

A universal default is the after effect of when you become delinquent on one or multiple debt obligations. For example, if you missed an auto loan payment and were reported 30 days past due, this could potentially affect your other lines of credit. A whole host of problems could arise. Some creditors could potentially close out lines of credit you have opened or slash your credit limit so that you are less of a liability to them in the case you continue to miss payments on other obligations. Essentially since you missed a payment with one creditor, other creditors were notified and could potentially alter the terms of your arrangements with them due to this.

How to Avoid Universal Default

There’s no real way to avoid universal default besides making sure that you do not miss any payments and avoid being reported 30 days late by any of the credit bureaus. Once you’re reported late other creditors and credit card companies will take notice and this could potentially affect your accounts with them.

How to Make Sure You Don’t Miss Payments

A 30-day delinquency isn’t something to take lightly, if possible it could potentially help to setup automatic payments if this is a potential concern you have. There are also other things you can do make sure you never miss a bill payment. What’s important is that you try to remain consistent in your payments, whether you use autopay or not.

Potential Impact of Universal Default

There’s no knowing what the exact potential impact of universal default might be but it’s usually a negative one. You could potentially see credit limits cut and slashed heavily or even closed out entirely. For example, let’s assume you have two Capital One accounts, one has already been closed since you’ve defaulted and the other is in good standing. If you’ve default on one account but not the other, you should expect the good standing account to have its credit limit cut to the balance and then potentially closed out altogether. It’s very unlikely a creditor keeps a line of credit open for you while you are behind on payments. Their job is to mitigate risk and recuperate losses, and in that regard, allowing you an open line of credit is a risky move to make. Some creditors with which you’ve maintained good payment history with may cut your limits somewhat or leave them untouched, it really all depends, but more often than not limits get cut and cards get closed.

Impact to Your Credit

Anytime you miss payments the impact to your credit score isn’t going to be good. Payment history accounts for 35% of your credit score so maintaining good payment history is important, However, the bigger issue is when your credit limit gets cut (which tends to happen with a universal default) there will also be a negative impact to your utilization rate. So the negative impact to your credit worthiness becomes a sort of double whammy.