Credit Card Grace Periods: What They Are And How To Use Yours To Curb Interest

Credit cards boast a wide array of rewards and perks that make them an enticing purchase method, but they can come at the cost of additional fees and interest. If you want to avoid unnecessary finance charges, using a credit card with a built-in grace period is worth your consideration.

Grace periods give you additional leeway when it comes time to pay off your balance, meaning you’ll have more time to prepare your funds before you owe interest. And when used most effectively, a credit card’s grace period helps you avert the costs of high-interest rates altogether.

What Is A Grace Period On A Credit Card?

A grace period is the time between the end of your billing cycle and your bill’s due date. As long as your balance is paid in full, you won’t be charged interest during your grace period. That means you can use this time to save up your cash, knock out your remaining balance and build up your credit.

Not all types of credit card transactions are eligible for a grace period. In general, credit card companies will only grant a grace period for purchases you make on your card. Cash advances, convenience checks and balance transfers usually do not qualify for this interest-free period before your bill is due.

Most credit card providers offer some kind of grace period for purchases, though they have no legal obligation to do so. The length and specific terms of a grace period will vary from creditor to creditor, so it’s a good idea to shop your options before you apply.

If you’re not sure whether your current card offers an interest-free grace period, check your credit card agreement. Most credit card companies will list the details of your grace period in a “paying interest” or “avoid paying interest” section of your terms and conditions.

What Is The Typical Length Of A Grace Period For A Credit Card?

A normal grace period for a credit card ranges from 25 – 30 days, though it’s not required for your credit card issuer to fall within these margins. Some grace periods could span over a month, while others are as short as 21 days.

In fact, according to the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, card issuers must plan to disperse bills or post them online at least 21 days before they are due. Many credit card companies count those 21 days toward their grace period offerings.

Do Grace Periods Affect Your Credit?

Unlike making a late payment, paying off your current balance during the grace period will, in most cases, not bear any negative effects on your credit report.

In reality, the very opposite is often true. Payments your lender receives during your grace period can actually boost your credit score, even if grace periods don’t directly influence your credit report. Payment history makes up 35% of the credit data used to determine your FICO® Score, which means that borrowers who leverage their grace period to pay their bills on time could see an increase in their overall credit score.

What Happens To Your Remaining Balance After A Grace Period?

In the event that you are unable to pay off your balance statement in full, your grace period will be revoked, and you’ll start to accrue interest on your remaining balance immediately – in addition to the interest you’ll accumulate on new purchases. That’s part of what makes eliminating credit card debt challenging for so many. Once you have an overdue balance, you’ll have to contend with your interest while tackling the principal at the same time.

Fortunately, many credit card issuers will reopen your grace period once you’ve met their requirements. Generally, that involves paying off your debt and making each payment on time for several consecutive billing installments.

How To Make The Most Of Your Grace Period

Grace periods make it possible to use a credit card without paying interest, which is a perk in its own right. However, there are a couple of strategies you can use to maximize the potential benefits of paying with credit.

The first – and most important – step is to pay the total balance due for each billing cycle. Even if you pay on time some months but only pay the minimum payment for others, your lender could still eliminate your grace period if you aren’t consistent. That means you’ll need to be aware of start and end dates for your billing cycle, the total duration of your grace period and the statement date when your bill is due.

Next, you’ll want to align major purchases with the start of your billing cycle. Credit cards are great for purchases large and small, but the former is more difficult to pay off by the time it’s due. Buying at the beginning of your billing cycle essentially doubles the amount of time you have to pay back the borrowed amount with no interest. That’s because you’ll have nearly the entire month before your billing cycle ends and your grace period before payment is due.

Here’s how it works: Let’s say your billing cycle ends on the 20th, and you have a 21-day grace period before your statement date. If you time a purchase for the 21st, you’ll have until the 20th of the following month before your current billing cycle closes. Then, you’ll have another 21 days to get your bill squared away.

The Bottom Line: Use Your Grace Period For No-Interest Financing

When used to its greatest potential, your grace period will turn your credit card into a short-term, interest-free loan. As nice as that sounds, cardholders often run into trouble when they don’t understand the specific conditions that dictate their grace periods and billing cycles.

By knowing the length of your grace period and the cadence of your billing periods, you’ll be able to strategize the best times to make purchases with your credit card and pay them off. From there, you’ll find it much easier to maintain a life free of credit card debt.

Having trouble unlocking the benefits of your grace period due to unpaid credit card bills? Check out our guide to paying off credit card debt to get your balance back to zero.