The 101 of Credit Grace Periods

By February 25, 2014Credit Repair

You’ve heard the term, “credit card grace period,” but do you know what it is exactly? For anyone with a credit card, understanding it is fundamental to achieving a strong credit score. Simply put, a grace period is the duration between the end of a credit card billing cycle and the date that a minimum payment is due—at least 21 days per the CARD Act of 2009.

Grace Period v. Interest-Free Period

You’re also likely familiar with the phrase “interest-free period.” Though sometimes used interchangeably, a grace period and interest-free period are two separate concepts.

An interest-free period extends the allotted time to not be penalized with a finance fee until your charges post to your balance. If a card user pays his/her complete balance when due, no interest charge is applied. But owing any money, even a measly dollar, will still result in no grace period for purchases during the next billing cycle.

In fact, the credit user will be charged interest dating back to the billing cycle’s first purchase, even if the minimum payment was made in time. The only way to avoid interest accruing during a grace period is if the total balance is paid in full by a grace period’s due date. The bottom line— The “interest clock” starts ticking the minute a purchase transaction is registered, so leaving any unpaid balance on the card means that there’s no longer “a hold” (grace period) for future charges.

Therefore, the diligence of a credit user to make payments in full is mandatory to earn interest-free status and crucial to achieving a healthy credit history; and the better one’s credit history, the better his/her credit perks.

Reinstating Your Grace Period

Remember, even if you pay your complete balance, it doesn’t mean that your grace period automatically reactivates. Most banks require a credit user to have a zero balance for two consecutive months before grace is reinstated. The extent of time that a creditor grants a cardholder after he/she is late to make a payment without incurring a penalty fee varies from insurer to insurer, and consumers can sometimes become eligible for increased grace periods depending on the circumstances of their payment histories.

Because of the variance, credit users should familiarize themselves with their card agreements to understand the complexities of each one’s grace and interest-free periods.

Getting Back in Your Creditor’s Good Graces

It takes dedication to financial responsibility and adherence to your creditor’s billing schedules to avoid interest charges and maintain a healthy credit score.

Is your credit history plagued with late payments? If so, we can help you get back on schedule to improve your credit score. Contact us today to get started.

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