Understanding Your Grace Period
March 10, 2008
Those consumers who want to save money on their credit card use should understand the grace period associated with a card and use that to their advantage. How? Pay the balance within the grace period and avoid being charged interest or finance charges.
Basically, the grace period is the amount of time that you have to pay off the balance on a card before the interest kicks in. If you pay during the grace period, you are not charged the interest, which in many cases is very high.
Be aware, however, that some credit card issuers have been shortening grace periods or changing grace-period rules. This is why you have to stay on top of this.
The average grace period among the top 10 credit card issuers is 22 days, according to the 2007 Credit Card Survey by Consumer Action, a nonprofit, membership-based organization that advocates for consumer rights. This is down from 30 days which was the norm several years ago, said Bill Hardekopf, chief executive of LowCards.com.
According to American Express there are three types of grace periods: Consumers under a typical grace period will pay interest on all new purchases immediately, unless they have paid the previous month’s bill in full. A credit card with a full grace period means the average daily interest calculation does not include new purchases made that month. And third, a card with no grace period means that interest is charged on all purchases immediately.
The only way to know what type of grace period you have with a card is to read the back of your monthly statement.