Most credit card issuers offer an interest-free period for purchases – known as a grace period – provided you pay your balance in full by its due date.
Understanding what a credit card grace period is and why it matters is important. It can help you avoid interest charges and save you money over time.
Read on to learn how a grace period works and get useful tips on how to maintain eligibility to avoid losing it.
What is a credit card grace period?
A credit card grace period is a stretch of time you have to pay off new credit card charges without incurring interest. It runs from the end of your billing cycle to your payment due date for that cycle.
If your credit card has a grace period, it must last at least 21 days per the Card Act of 2009. That is, the card issuer has to mail or deliver your statement at least 21 days before its due date.
While federal law doesn’t require credit card issuers to offer a grace period, many do provide one for purchases. Most credit card grace periods last between 21 and 25 days, but some can last longer.
Your grace period usually only applies to new purchases. Credit card companies don’t offer grace periods for:
- Cash advances
- Convenience or access checks, which are a form of cash advance
- Balance transfers.
How do credit card grace periods work?
Your credit card billing statement comes with some important dates: your statement closing date, which is the last day of your billing cycle, and your due date. To get a better sense of how grace periods work, it’s useful to look at these important terms in additional detail.
- Billing cycle or billing period: It’s a period of time that ends on the closing date of your statement and begins on the day after the closing date of the previous billing cycle. Note that your monthly statement reflects one billing cycle.
- Due date or payment due date: The date when you must pay your balance due (or at least your minimum due) before your account is considered late. Your due date always falls after the closing date of your credit card statement.
Let’s look at an example. Say you got a new credit card and charge $400 by the time your billing cycle closes.
If your credit card offers a grace period, you’ll avoid interest charges on the $400 if you pay off your entire balance by its due date.
Why is my grace period cancelled?
Continuing with the example above, if you were to pay less than the full $400 balance due, you’d lose your grace period. You’d lose it even if you had paid more than the minimum due.
Say you had paid $50 by the due date. In that case, you’d be charged interest on the remaining $350 starting the first day of your next billing cycle. Any new purchases would incur interest charges starting the day you made them.
In addition, new purchases would accrue interest on the days between the end of your closing cycle and your due date.
How to get back your grace period
If you lose your grace period, you may be able to get it back after two months of paying off your balance due. That is, you’d need to pay your outstanding balance in full for two consecutive billing cycles.
Beware of trailing interest
If you decide to try to get back your grace period, keep an eye on any trailing interest you might have incurred during your prior billing periods.
Let’s say that at the end of your billing cycle you pay off your balance due. Then, the next billing period you charge one $100 purchase and pay it off by its due date. You’d think you’d regain your grace period, right? Wrong. Trailing interest got in the way.
Your $100 purchase started accruing interest the day you made it. So even though you paid the $100, you still have outstanding trailing interest you must pay. If you don’t, you won’t regain your grace period.
To avoid surprises, it’s important that you always check your credit card statement. That way, you’ll know the exact amount you must pay to reset your balance to zero.
How do grace periods work with promotional rates?
Having a promotional rate doesn’t guarantee that you’ll keep your grace period. Even if your credit card comes with a zero percent promotional rate, you can lose your grace period if you don’t pay your balance in full.
Assume, for example, that you have a new credit card with a promotional 0% APR on purchases. And let’s say you charge $400 your first month.
If you don’t pay your balance in full by its due date, you’ll lose your grace period. Yes, you won’t incur interest on the $400 since your rate is zero percent, but you won’t keep your grace period either.
Without your grace period, you’ll start incurring interest on your outstanding balance at your regular purchase APR the first day of the billing cycle after your promotional rate expires.
Why should you keep track of your grace period?
Keeping track of your grace period is important when you’re trying to avoid interest charges. You need to be particularly watchful with balance transfers.
If you get a balance transfer credit card to pay off debt faster, don’t use it for new purchases. It’s better to have two credit cards: one for purchases and another one for balance transfers.
Why? Because if you use your balance transfer card for new purchases, you can lose your grace period if you don’t pay your entire balance in full: this includes new purchases and any balance transfers you’ve made.
For example, if you complete a $5,000 balance transfer and then use your card to make a $50 purchase, you’ll need to pay the full $5,050 to avoid incurring interest on the $50.
So even if you were to pay $100, your $50 transaction will continue accruing interest until you pay off your entire balance. Credit card companies in general apply your payment first to interest charges, then to the balance with the lowest APR and then to balances with higher APRs.
» See also: 7 Crucial steps to get out of credit card debt.
Grace period of major credit card issuers
Major credit card companies maintain their own grace period policies and definitions in their credit card agreements. Some offer a 21-day grace period while others can offer 25 days or more.
Since they have some leeway in how they define terms, not all of credit card issuers choose to call a grace period a “grace period.” Instead, some companies disclose it under their “Paying Interest” definition.
Here’s how Bank of America defined “Paying Interest” (grace period) in their Visa Credit Card Agreement: “Your due date is at least 25 days after the close of each billing cycle. We will not charge you any interest on purchases if you pay your entire balance by the due date each month. We will begin charging interest on cash advances and balance transfers on the transaction date.”
Below, you’ll find the grace period of major credit card issuers we reviewed:
|Issuer||Grace Period (Days)|
|Discover||25 (23 for February billing periods)|
|Bank of America||25|
|US Bank||24 - 30|