A credit card grace period is the time between the end of your billing cycle and your payment due date that allows you to pay your balance without incurring interest or penalties.
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What is a credit card grace period, and how does it affect you? Credit card grace periods are the time between when your billing cycle ends and when you’re required to make your credit card payment. During this time, you typically won’t be charged interest on your balance. This guide reviews what credit card grace periods are and how you can use them to limit your interest fees.
How does a credit card grace period work?
Credit card companies charge interest on balances that haven’t been paid in full. However, a grace period gives you extra time to pay off your balance before the interest will start accruing. If the balance is paid in full during the grace period, the credit card company usually won’t charge any interest fees.
When you get your credit card bill, you’re informed of what your balance is for that statement and given a due date for either making a minimum or partial payment or paying the entire balance in full. If you leave a balance by making a partial payment, your interest rate determines what your additional costs will be until you pay the rest.
There are several things you should pay attention to when you receive your bill.
- The statement balance is what’s included on the current bill, which may exclude some transactions if you made them after the closing date.
- The closing date is the day the statement is generated, which means if you made purchases after the closing date, you don’t need to pay them off until the following due date.
- The minimum payment is what you’re required to pay before the due date to avoid late payment fees.
- The due date is when your payment is due, and this is usually at the end of your grace period.
How long is a typical credit card grace period?
The grace period is normally 21 – 25 days after your closing date. This means credit card companies give customers three weeks to pay their bills after the statement closes before charging interest. You can find your card’s grace period in the terms and conditions section of your credit card agreement or by contacting your card provider.
Some credit card companies offer an introductory interest rate for balance transfers that can be as low as 0 percent APR, so you might not care about your grace period at first, but once the introductory period runs out, you’ll need to watch out for interest charges.
Not every credit card has an introductory rate for balance transfers, so if you transfer a balance, you might be paying interest on it right away. Pay attention to the fine print when you select a card so you aren’t taken by surprise.
What happens if you don’t pay the full amount due by the end of the grace period?
If you don’t pay the full balance, you must pay interest on your balance after the date the payment was due. Once you’re being charged interest, your fees are based on your balance each day. If you were to make payments throughout the month to lower your balance, you could reduce the amount of interest you would be charged.
Once you carry a balance of $0, you’re no longer charged interest for the days that your balance is paid off. However, you likely won’t get your grace period back until you’ve paid the entire balance for two consecutive months. For example, if in April you made only the minimum payment and then paid your entire balance in May, you wouldn’t get a new grace period until June.
If you don’t pay your entire balance or you’re late making your minimum payment, it can impact your credit score. Late payments show up on your credit reports and generally have a negative impact on your score. Plus, carrying a balance increases your credit utilization. This figure reflects how much of your available credit you’re currently using, and if your utilization is above 30 percent, it could make you seem less creditworthy.
Do all credit cards have a grace period?
Credit card companies aren’t required to offer grace periods, so it’s a good idea to look into whether your credit card provider offers one. The good news is that most major credit cards do have grace periods. As previously mentioned, there may also be an extended grace period available for balance transfers.
Even if a credit card has a grace period, it won’t apply to cash advances, so only take a cash advance if you’re willing to pay interest on what you take. A cash advance and getting cash back with cards that allow it on normal purchases aren’t the same thing. So, if you’re at the grocery store and get cash back, the amount you take is simply added to the transaction total.
What does the CARD Act say about grace periods?
The Credit Card Accountability, Responsibility and Disclosure (CARD) Act was signed into law in 2009 and altered how credit card companies could charge fees and interest. It’s one of many consumer rights laws that have been passed to protect consumers. This law requires credit card companies to have specific policies regarding grace periods and interest rate changes.
According to the CARD Act, if your credit card has a grace period, you must be given at least 21 days to pay your bill before the company can begin charging interest on your purchases. While grace periods differ slightly between credit card companies, three weeks is the minimum period.
Maximize your credit card grace period
If you plan your purchases correctly, you can stretch your grace period to up to 55 days. If you make a purchase one day after your statement closes, for example, it won’t show up on your current statement. The transaction shows up on your next statement instead, giving you an extra month before you’re required to pay interest on what you’ve bought.
Some savvy consumers plan larger purchases for a day or two after their statement closes to get almost two months to pay their bill interest-free.
If you’d like to line up your due dates with when you get paid, most credit card companies allow you to request a new billing cycle and due date. If you change the due date to a couple of days after you’re paid, it makes it much easier for you to pay the full balance each month.
If the credit card company agrees to change your due date, there might be a waiting period before you can request a change again.
Protect your credit score
While paying your credit card balance in full each month is a great way to build your credit, there may be errors on your credit reports that are costing you money. You should check your score at least once a year and see if there are negative marks on any of your reports that might keep you from getting a better interest rate on your next loan.
If you’ve lost the grace period on your credit cards, interest fees can make it more difficult for you to manage your debt and keep your credit healthy. Our credit repair consultants can help by providing personalized credit advice and looking into whether the derogatory marks on your credit report are fair and accurate.
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Source: lexingtonlaw.com