What is a credit card grace period?
Many credit card issuers give customers a certain amount of time to clear new balances before charging any interest or additional fees. Known as a credit card grace period, this is typically between 21 and 25 days, starting on the first day of the billing cycle and running to the next due date.
Grace periods give you greater financial flexibility to pay for purchases up to the due date without incurring any finance charges. These grace periods do not apply to all credit card transactions, so you must understand the terms set out in your credit agreement.
What limitations are there on grace periods?
Not every credit card issuer will offer grace periods to customers, and those that do will have certain limitations. New purchases may not be subject to a grace period if you carry a balance forward from the previous billing cycle. The billing cycle must start with a $0 balance to be subject to the grace period.
If you only make minimum payments, you could pay interest on both the unpaid balance and new purchases. Interest on new purchases may accrue immediately for credit card accounts with an outstanding balance. Your credit card issuer may also charge additional fees.
These charges will accrue until the balance is paid off in full, at which point the grace period will once again apply to new purchases. To get the most from your grace period, make sure you clear your balance in full by the due date each billing cycle.
Depending on their type, grace periods exclude some transactions. Cash advances can start accruing interest immediately and may be subject to several additional fees. Balance transfers are also unlikely to come with a grace period unless they are part of a 0% promotional offer. Pay off a transaction as soon as possible to reduce the interest you pay if it falls outside of your grace period terms.
How long is a credit card grace period?
Before the Federal Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 came into effect, issuers could start charging interest on purchases straight away. Customers could face interest charges before their issuer sent them the bill even if they cleared their balances in full each month.
This consumer protection law now means credit card issuers must provide their customers with a billing statement 21 days before payment is due. Customers with a grace period will have a minimum of 21 days from the time they receive their bill to clear the new balance.
This statement won’t notify you if you have a grace period, so be sure to check your credit agreement if you are unsure. You can find this on your credit card issuer’s website or by contacting them to request a copy is sent to you by post.
Your due date will remain the same every month unless this falls on a weekend or holiday. In this case, your due date will be the next business day. You have until at least 5 p.m. on the due date to make the payment without incurring charges.