Credit Card Grace Periods: A Quick Guide

By Mike Peterson
In January 28, 2014

If you’re like most people, you’ve heard of a credit card grace period – but you might not be totally sure about how grace periods work and how they can potentially save you money. 


That’s why I decided to dedicate this week’s post to the grace period – what it is, how it works, and how you can qualify.


First Things First:  What is a Grace Period?

A credit card grace period is the period of time between the end of your billing cycle and the date that your payment is due.  A typical grace period is around 25 days (although this can vary from card to card).  Most importantly, though, during a grace period, you don’t accrue any interest on new purchases – provided that your balance is paid in full every month.


Here’s a quick example:  Let’s say you use your credit card to purchase a $300 dishwasher.  The purchase was made during your credit card company’s grace period, so at the end of the billing cycle – provided you started with a zero balance – your total credit card balance would be $300.  That’s the price of the dishwasher, without any interest tacked on. 


In other words, by taking advantage of your credit card’s grace period, you can potentially save yourself from having to pay interest on credit card purchases. 


Sounds like a great deal, right?  Grace periods can be super-helpful for folks who want the rewards and flexibility of credit cards – without the high interest that comes with using them.  After all, nobody actually wants to pay hundreds of dollars a year in credit card interest.


But there’s a little more to credit card grace periods than simply making a purchase.  Things like your payment history; the type of transaction; and your overall credit can all determine whether you can benefit from a credit card grace period. 


Who Qualifies for a Grace Period?

Although the rules about grace periods can vary quite a bit from company to company, your eligibility for a grace period is typically determined by three main factors:


1. You carry a zero credit card balance from month to month.  Most credit card companies offer grace periods to customers who routinely pay off their balances – in full – at the end of each billing cycle.  If you typically only pay the minimum amount due each month or you are working on chipping away at a large balance, you probably don’t qualify for a grace period.


But don’t get discouraged:  Many credit card companies will reconsider your eligibility for a grace period if you can maintain a zero balance for two or more months.  Check with your credit card company to find out how to qualify.


2. You pay your credit card bill(s) on time.  If you’ve got a history of paying your credit card bills late, you probably don’t qualify for a grace period. 


3.  You have good credit.  Credit card companies typically reserve things like grace periods for customers that they view as less risky – in other words, customers who don’t have large outstanding balances or shaky credit history.  If you’re in the process of rebuilding less-than-perfect credit, you may not qualify. 


In other words, if you pay on time, carry a zero balance, and have good credit, there’s a good chance that you qualify for a grace period. 


The Fine Print and Other Details

Of course, grace periods aren’t as simple as carrying a zero balance and having good credit.  Before you assume that you’re covered by your credit card company’s grace period, keep a few things in mind:


  • Grace periods can vary in length, and some card companies may not offer them at all.  The best thing to do is read the fine print for your account, and/or chat with a customer service representative from your credit card company.  


  • Balance transfers, convenience checks, and cash advances usually don’t count.  Grace periods are almost always reserved for purchases.  Any other types of transactions probably don’t qualify.


Of course, remember that credit is complicated, and every situation is different. If you aren’t sure if you qualify for a grace period, the best thing to do is contact your credit card company and speak to a representative.


  • “Trailing interest” can catch you off guard.  Trying to maintain a zero balance?  Watch out for “trailing interest,” which is interest that is charged to your account between the time you send your payment and the time your payment is posted to your account.  This can be especially problematic for folks who prefer to mail their payments. 


The best way to avoid “trailing interest” is to opt for electronic payments, which are much faster.  It’s also a good idea to check your balance online before you pay your bill – the information available online will likely be more current and reflect the latest interest charges.  That way, you can be sure that you have a zero balance.


  • Disputed charges are complicated.  Again, this applies to folks trying to maintain a zero balance to qualify for a grace period.  If you are currently disputing a charge on your card, your credit card company can’t require you to pay interest for that charge.  However, if the dispute ends and you are held responsible for the charge, you will be expected to pay interest.  Make sure you keep tabs on any disputes to ensure that you don’t end up unexpectedly carrying a balance.


Rewarding Responsible Use

At the end of the day, credit card grace periods are all about companies rewarding customers for using credit responsibly – and if you read this blog regularly, you know I’m a huge fan of responsible credit card use! 


I’m also a big fan of saving money and not paying unnecessary interest fees – so you can see why I think grace periods are pretty great.


Happy saving!

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.

Click "More" for important American Credit Foundation client transition information