There’s a simple way to continually get up to a 55-day interest-free loan from your credit card issuer. No gimmick, just a little thing called the credit card grace period.
Establishing good credit is essential to financial fitness, and having a clear understanding of how your credit card’s interest accrual and grace period operate is an essential key to wise credit usage. Unfortunately, credit card companies don’t do a great job of explaining these things. Hopefully, however, you’ll have a firmer grasp by the conclusion of this article.
What is the Grace Period?
A “grace period” refers to the time gap between your credit card’s billing cycle closing date and the date the next bill is due, during which you’ll have the opportunity to pay off the preceding billing cycle’s balance without incurring interest on it.
It is not required that credit card companies offer it, but the vast majority do. The Credit CARD Act of 2009 requires that if they do, it must span at least 21 days, though many lenders provide a slightly longer grace period, around 25 days. However, in order to receive one, you must have paid the previous two consecutive billing cycles’ balances off in full. Note that the grace period generally does not apply to charges to your credit card for balance transfers, checks, and cash advances, which tend to be charged interest from the first day.
To figure out how your card’s grace period works, you must determine your billing cycle’s closing date, when the grace period begins, and its due date, when it ends. For example, my Capital One statement states that my billing cycle runs from August 13th through September 4th, and my minimum payment due date is October 1st. Thus, my card’s grace period runs from September 4th and ends on October 1st, spanning 24 days.
You should also ensure you know the exact cutoff time for your minimum payment on the due date, which is based on where the credit card company is located; most operate out of the East Coast and thus their cutoff times are set according to Eastern Time. For instance, in my case, Capital One considers 5:00 p.m. Eastern Time on the due date as the time the minimum payment must be made in order to avoid a late fee, and I live in Seattle, so I need to submit it by 2:00 p.m. Pacific Time.
Note that if you don’t currently have the grace period or if you “fall out of grace,” credit lenders are still required by U.S. law under the Credit CARD Act of 2009 to provide your bill for your 21 days prior to your cycle’s due date.
If the balance incurred during the billing cycle is paid off by the end of the grace period, the interest that had been accumulating daily since the date of the first transaction, which would have otherwise been charged after the due date, will be waived. For example, if I make a purchase using my Capital One card on September 3rd, the day before my billing cycle ends, and I pay off that purchase (and any other purchases, if any, that I made during that billing cycle) during the grace period, I won’t be charged any interest on it.
If you are consistently paying off your full balance each month, you can more than double the typical 21–25 day grace period. In that case, if you make a purchase on the first day of grace period, i.e., the first day after your billing cycle closes, that is also the day of your new billing cycle, and it won’t be due until that billing cycle’s due date, which is probably in about 55 days. Note the dates will be the same whether or not you have a grace period. The difference is if you pay the full balance by the due date you won’t be charged any interest. So you can consider it like a completely free two-month (nearly) loan, which can certainly come in handy if you need to make a big purchase you can’t pay for right away.
Maintaining a Balance Past the Due Date: Don’t Do It
Let’s say you bought a couch for $1,000 on September 15th, and your minimum payment, due October 5th, is $21. If you pay $100 on October 1st, you won’t be slapped with a late fee and won’t continue to be charged interest for that portion of the purchase. However, you’ll keep accumulating interest on the remaining $900, plus for the $100 you did pay off, you’ll still be charged the interest that accred daily between the purchase’s posting date and the day you submitted the payment for that portion.
If you consistently pay off your whole balance incurred during each month’s billing period by its ensuing due date, you can avoid interest altogether. So mark those dates down on your calendar, create reminders, whatever it takes for you to ensure you’re paying off your full balance by the due date and you’ll be well on your way to becoming a credit ninja.