grace periodUpdated: May 2, 2019

You may be aware that credit cards have grace periods which can give you a bit more freedom when paying your bill, but you probably don’t know exactly how they work. At least that’s what the Consumer Financial Protection Bureau assumes; in a 2013 report, the bureau noted that it’s unclear if consumers understand credit card grace periods and wondered if people could use a bit more information to get up to speed. Grace periods are helpful, but they’re also one of the more confusing aspects of credit cards. Knowing what benefits they bring and how to qualify for them can actually save you quite a bit of money on your credit card bill. Keep reading to find out more about how to take advantage of this credit card perk.

A primer on credit card billing cycles

Before you learn about grace periods, it helps to understand how the billing cycle works for credit cards. With installment loans, it’s easy to understand how billing works since you just have a monthly payment that is due by a certain date, but credit cards are a form of revolving credit, which makes things a bit more complex.

When a billing cycle opens, your credit card purchases post to your account as you make them and they collectively add to your balance, while any payments you make subtract from your balance. At the end of the billing cycle, which generally lasts about a month, your credit card issuer will send you a bill for what you purchased during that cycle and the cycle will close. Your bill will be due some period after the billing cycle closing date, usually between 20 and 30 days. Right after one billing cycle ends, another will open with whatever balance you haven’t paid from the end of the previous billing cycle, starting the process over again.

Where does a grace period fit into this equation?

A grace period is the window of time after your billing cycle closes during which you can pay your credit card bill without having to pay interest on your purchases. You can find how long your card’s grace period lasts by reading your credit card agreement, but they’re usually around 25 days and end on your credit card bill’s due date. The 2009 Credit CARD Act does not require credit card issuers to give their customers grace periods, but if a card issuer chooses to offer a grace period, the act stipulates that it has to last at least 21 days. Note that the grace period doesn’t give you extra time to pay your bill, and that sending a payment after your payment due date will likely result in you having to pay a late fee and possibly risk a penalty APR — unless you have a card that waives those fees. While grace periods cover purchases, their benefits often don’t extend to cash advances or convenience checks, and some cards don’t let the grace period cover balance transfers as well. This means transactions that don’t benefit from the grace period will start generating interest right away.

Is it possible to lose your grace period?

Many credit card providers grant grace periods to customers, but there’s usually a condition: in order to get a grace period, you have to pay off your previous month’s bill in full. When your bill comes due, if you have paid less than the full amount you owe, you may lose your grace period, which will have a couple of bad effects. First, your credit card issuer will begin charging interest on the unpaid portion of your bill, and second, all of your new purchases will start accruing interest immediately. This will last until you qualify for a grace period again, which means paying off all your credit card purchases, interest charges and fees in full. This is why we encourage our readers to use their credit cards responsibly, meaning paying the balance in full every month.

However, sometimes that’s difficult to achieve due to residual interest (also known as trailing interest), which is the interest that gets generated between when your credit card bill gets sent and when your issuer receives your payment. This small amount of excess interest can cause you to accidentally underpay your bill, which will keep you from qualifying for a grace period again. To avoid residual interest ruining your month, you can contact your credit card provider and ask for your full payoff amount for the date you plan to make your credit card payment. They should be able to calculate exactly how much money you’ll need to send, allowing you to keep your grace period.

Keeping up the grace period is a great reason to pay off your credit card each month, as it can save you a boatload in interest fees. To learn more about the intricacies of credit cards and how they work, follow our credit cards blog.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.