Credit Card Grace Periods - What They Mean To You

Posted by Nick Niesen on October 29th, 2010

Credit card grace periods are the amount of time given by a creditor to the consumer to pay off a purchase before interest charges are applied.

Although the amount of time offered will vary from account to account, grace periods most often fall between 20 and 25 days. This is not always the case, and there are many occasions when there is no grace period.

Several common types of grace periods are:

Partial Grace Period

This type of grace period utilizes the average daily balance method of computing interest charges, and does include new purchases provisionally. If the previous billing cycle balance was not paid in full, then interest is applied to new purchases immediately and there is no grace period. If the consumer paid their balance in full during their previous billing cycle, then interest will not be applied to new purchases till the next billing cycle.

Full Grace Period

This grace period also utilizes the average daily balance method of computing interest, but it excludes new purchases. This is very important and it means that any new purchases made will not have finance charges applied until the billing cycle following the new purchase. This offers a full billing cycle grace period, and if the consumer pays the balance then no finance charges will be applied.

No Grace Period

A few credit cards have no grace period at all. These use the method of calculating finance charges known as Average Daily Balance that includes new purchases. This means that interest charges are applied at the moment of purchase, and will be figured into the daily average immediately. Even if you paid your previous balance in full, this interest is applied.

Cards with no grace period are not as common as the others, but pay close attention to the terms and conditions when you apply. Look for the terms "average daily balance including new purchases", and see if a date range is given for the application of interest.

All credit card applications have their grace periods clearly marked under the terms and conditions. You will usually find them under a heading called "Grace Period for Repayment of Balances for Purchases". The reason this is worded in this way is because there are no grace periods for cash advances. Interest is applied the very moment the cash advance is taken out. Balance transfers also have their own grace periods, if any, defined under their own heading.

To learn what the grace period is on your current credit card, the information can be found on the back of your monthly statement. This information is also found online on your creditor's website, but be careful that you are looking at the correct offer. If there is any doubt, call your credit card provider and ask. This is the best way to be sure.

Not all credit card grace periods are the same, and sometimes there is no grace period at all. This article will cover several of the most common grace periods available today.