A credit card grace period is a span of time from the end of your billing statement to the date your payment is due in which—if you fully pay your bill—you'll not be charged interest on any purchases. Most card issuers offer an interest free period on purchases if the user meets certain criteria, but the specifics vary by card. Understanding how to make yourself eligible for a grace period could help you avoid hundreds, or even thousands, of dollars in finance charges.
- How Do Grace Periods Work
- Grace Periods by Credit Card Issuer
How do Grace Periods Work?
Grace periods generally last between 21 and 25 days after you receive your credit card bill. While not mandatory, most major credit card allow card holders to avoid interest by consistently paying their bill in full by their due date. As mandated by the CARD Act of 2009, the due date that any payment is considered late can be no shorter than 21 days after the customer is issued the bill. The day your bill is due usually coincides with the end of what is considered to be your grace period. If your due date falls on a day when your card issuer does not accept payment—e.g. a weekend or holiday—then payments accepted on the next business day are not considered late. This effectively moves your due date back and extends your grace period.
When You Pay in Full
If you pay your credit card in full within your grace period you can avoid paying interest on most transactions. The exceptions to this are cash advances—such as using your credit card at an ATM—and balance transfers, which usually start accumulating interest as soon as you make the transaction depending on your credit card agreement. If you utilize this feature correctly, you essentially receive a interest free loan from your credit card issuer.
Say you make purchases with your credit card on a January billing cycle totaling $1,000—without ATM withdraws or balance transfers. At the end of your cycle, the credit card issuer sends you a bill for that cycle with a due date of February 25, which is a business day. This 25 day window—from January 31–February 25—is your grace period, and if you pay your balance in full during this time, you don't pay interest on any of the purchases you made in January. You are also eligible to avoid paying interest on purchases in your next billing cycle.
When You Carry a Balance
If you don't pay your credit card bill in full for a billing cycle, then you're usually charged interest on the unpaid portions of your balance and aren't eligible to avoid interest on purchases made in your next billing cycle. Failing to fully pay off your credit card bill can cause you to pay interest on future bills until you pay your bill in full for two consecutive billing cycles, though your eligibility to reinstate your grace period depends on your specific credit card agreement.
Let's say you make a purchase of $1,000 on January 1, the first day of the credit card billing cycle for the month. The billing cycle ends on January 31, and the payment is due on February 25. If you only pay off $900 of the balance by the due date, you have to pay interest on the $100 leftover as well as any new purchases made in the next billing cycle.
Credit card issuers will often allow you to reinstate your grace period by paying your bill in full for one or two consecutive billing periods. Your credit card agreement will detail how, or if, you can become eligible to avoid interest after carrying a balance from one billing cycle to the next.
How to Avoid Trailing Interest
Paying your full balance on the last day of your billing cycle can help you avoid trailing interest that could unexpectedly cause you to lose your grace period or miss payments. Since interest still accrues on the days between the end of your billing period and the day you pay the bill, you could be under the impression that you're paying all that you owe the credit card company, but actually still have a small amount left over.
If you stop checking your credit card statements—because you're under the impression that you no longer owe the credit card issuer—and miss a payment, then you'll not only be punished by late fees and damages to your credit, but will also lose your eligibility for a grace period on the following billing cycle.
Grace Periods by Card issuer
The average grace period length for major card issuers that we examined was 24 days. For these issuers, you were eligible for a grace period if you paid your balance in full by the due date each billing period. However, the specific policies for grace periods vary by card.
|Minimum Length of Grace Period|
|Bank of America||25|
|Discover||25 (23 if the billing cycle starts in February)|
Bank of America, Citibank and American Express all stated in the credit card agreements that we examined that, to be eligible for a grace period, you must have paid you balance in full for the previous two cycles. For cards from these issuers, you can expect to pay you bill in full twice, after you carry a balance, to reinstate your grace period and stop paying interest on new purchases.
Capital One, Chase, Discover, and Wells Fargo stated that card holders are eligible for a grace period if they paid the full amount owed on their previous billing cycle. Under these circumstances—depending on what how your card issuer defines “paying in full” for a billing cycle—you might expect to pay your bill in full once in order to reinstate your grace period after carrying a balance.
The details of how a grace period works for a specific card can be found on the credit card agreement associated with that card. When looking through the agreement, look for sections labeled “When We Charge Interest,” “Grace Periods,” or “No Interest Periods” to find out how and when you can avoid interest. The Consumer Financial Protection Bureau maintains a database of archived credit card agreements, if you cannot find them on the card offerer’s web site.