Cutting Credit Costs: Understanding Grace Periods

This article explains what a credit card grace period is, why credit users should be concerned about it, and how to find out whether a credit card has a grace period.
Cutting Credit Costs: Understanding Grace Periods - Articles


What is a grace period?

In relation to credit cards, a grace period is the number of days you have before a credit card company starts to charge you interest on new credit purchases. It is the time between the closing date of the billing cycle and the due date, or date by which you have to pay the balance in full to avoid finance charges. Most grace periods are 20 to 25 days.

Why should I be concerned about a grace period?

You should be concerned about the grace period because it can have a big impact on the amount you pay in finance charges for using a credit card. Most credit cards have a grace period. However, you benefit from the grace period only if you pay the entire balance in full by the due date.

How can I determine if I have a grace period on my credit card?

Look on your most recent billing statement. The grace period information is usually printed on the back in very small print. You can also call the credit card issuer to verify grace period details.

How can I use the grace period to my advantage?

Paying each month’s bill in full assures you that there will be a grace period, thereby avoiding all finance charges.

Another way to use the grace period is to time major purchases immediately after the closing date of your account. Timing purchases just after the statement closing date gives you more days before the charge appears on your credit card billing statement. Suppose you have a credit card with the following:

Statement closing date = 5th of each month

Payment due date = 25th of each month

Now assume you must make a large purchase such a washing machine.
(See calendars below.)

For example, your washer breaks on August 3 and your statement closing date is August 5. By waiting until August 6 to buy a new washing machine, the charge will appear on your September billing statement instead of the August billing statement. Furthermore, you will have 49 days before the September payment is due. By contrast, if you charged the washer on August 4, it would appear on the August statement and a payment would be due in 21 days (i.e., August 25). By making the purchase on August 6, immediately after the August 5 closing date, you gain 28 more days before the payment is due!

Consumer tip #1

If you cannot remember the closing date of your credit card statement, use a fine point permanent marker to write the closing date on the front of the card.

Consumer tip #2

If the current due date of your credit card bill does not coincide with your pay dates, call the credit company and ask them to change the due date.

Prepared by Cathy Faulcon Bowen, associate professor and extension specialist, consumer issues programs, Department of Agricultural and Extension Education.