George Orwell's prognostication that Big Brother would keep tabs on our private lives never fully materialized. But many credit card companies can and will monitor your finances. And they won't hesitate to hit you with the Universal Default Clause if you step out of line.

Throw a tiny pebble into a pond and huge ripples will emanate in concentric circles. A tiny late payment on a mortgage or car loan can make some serious waves, too, especially if your credit card has a Universal Default Clause.

This little piece of fine print allows the credit card company to jack up your interest rate if you have a late payment on another unrelated account, like a loan or utility bill. This gem from the credit card companies not only makes waves out of ripples, but it can also soak you for some serious money.

Universe of trouble

This language, generally buried in the fine print of your agreement, gives your creditor the legal right to increase the interest rate on your credit card if you're late, or in default, with another creditor.
Credit card companies invoke the clause to help them manage risk. They know that if you exhibit poor credit behavior in one area of your finances, it could eventually spill over to your credit card account. As a result, companies increase your rate now in the event that you might default later.

Pulling the trigger

The credit card companies monitor your credit score on an ongoing basis, and they'll double or triple your interest rate if they see any "default triggers." A typical trigger might be a drop in your credit score, or a late payment on a home or car loan. Other missteps that could prompt an interest rate bump include: bouncing a check; carrying too much debt; exceeding your credit limit; opening new credit card accounts; applying for new mortgages and car loans.

Stay out of the line of fire

Approximately 40 percent of credit cards have a Universal Default Clause, although you can expect that number to decline as consumers become more aware of its ramifications. While some consumers are urging government action to ban it, you may have a more immediate and profound effect on credit card companies by simply taking your business to companies that don't insist on such a penalty.

Research different credit cards and look for offers that don't include this clause. Be sure to read the fine print of the agreement, and check with a customer service representative before you sign up.

Always strive to maintain excellent credit. However, as a future safeguard, avoid credit cards that carry a Universal Default Clause. Remember the ripple effect-if things go bad for you on the financial front, the last thing you need is a clause turning a little splash from a late pay into a tidal wave of trouble.