Credit Card Grace Period Explained

A woman pays credit card bills using a tablet
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Most credit cards allow for a grace period, which is the amount of time you have to pay your balance in full without incurring a finance charge. The grace period usually starts on the first day of the billing cycle and ends a certain number of days later, depending on the credit card issuer. Grace periods are typically between 21 and 25 days. A longer grace period gives you more time to pay off your balance and avoid interest charges.

As of 2019, Americans were $14.15 trillion in debt. Overall household debt is now 26.8% above the 2013Q2 trough. These numbers underscore how important it is to read the back of your credit card statement for details on the specific length of your grace period and to determine how your finance charges are calculated in regards to your personal debt.

When you need to reference your credit card agreement, you can find a copy on your issuer's website, or you can have a copy mailed to you directly.

The Credit Card Act of 2009

The Credit Card Accountability Responsibility and Disclosure (CARD) Act was passed by Congress and signed by U.S. President Barack Obama on May 22, 2009. The act "builds on the strong first step taken by the Federal Reserve toward improving disclosures and ending unfair practices."

Before the act was passed, banks could raise interest rates without warning, vary due dates from one month to the next, and charge “inactivity fees” if a customer did not use the card.

According to the White House Fact Sheet, some critical elements of reform in this law include:

  • Bans Unfair Rate Increases: Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked. 
  • Prevents Unfair Fee Traps: Institutions will have to give card holders a reasonable time to pay their monthly bill—at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and billing deadlines that fall in the middle of the day.
  • Plain Sight/Plain Language Disclosures: Credit card contract terms will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.
  • Accountability: The act will help ensure accountability from both credit card issuers and regulators who are responsible for preventing unfair practices and enforcing protections.
  • Protections for Students and Young People: The act contains new protections for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.

When You Might Not Have a Grace Period

Certain types of credit card transactions, such as cash advances and balance transfers, may not allow for a grace period. Thus, these transactions begin accruing interest as soon as the money is posted to your account, assuming that you don't have a 0% promotional rate in effect.

New purchases on a credit card may lack a grace period if you start the billing cycle with a balance. If you want to avoid paying interest on a transaction that doesn't have a grace period, you'll have to pay it off immediately.

To entirely avoid fees and finance charges on your credit card, you need to pay off the entirety of your balance each month, and begin the billing cycle with $0 owed.

The Requirement to Transmit Your Billing Statement

Credit card issuers are required to mail your billing statement at least 21 days before fees will be charged to your account. Your credit card statement won't necessarily give you an indication as to whether your balance has a grace period, and this is a detail you have to keep up with on your own if you hope to take full advantage of it.

If you're only making the minimum payment on your credit card each month, the grace period won't apply. You'll be charged interest on the unpaid balance plus your new purchases each month until you've completely paid off the balance. Only then will the grace period apply to new purchases.

Payment Grace Period on Loans

Loans also have payment grace periods, but they're not the same as those associated with a credit card. For a loan, the grace period occurs after a payment is due, but when it can still be made without penalty. This period of time is typically around 15 days. Make sure to check with your loan provider before assuming you have a grace period at all.

Student loans have a six-month grace period after you've graduated or your enrollment has dropped below half-time. After this six-month grace period, your student loan goes into repayment and you're required to make a payment each month.

According to the U.S. Department of Education, most loans will accrue interest during this 6-month grace period, and you can choose to pay the interest during this time to prevent it from being added to the principal balance.

Article Sources

  1. Center For Microeconomic Data. "Household Debt and Credit, 2019: Q4." Accessed March 25, 2020.

  2. White House Archives. "Fact Sheet: Reforms to Protect American Credit Card Holders." Accessed March 11, 2020.