DEFINITION of 'Grace Period (Credit)'

The number of days between a consumer’s credit card statement date and payment due date when interest does not accrue. The grace period is a window of time during which a consumer owes money to a credit card company for new purchases made during the last billing cycle but isn’t being charged interest. The grace period only applies if the consumer paid his or her last credit card bill in full and on time and didn’t carry a balance for any portion of the previous billing cycle.

BREAKING DOWN 'Grace Period (Credit)'

Because federal regulations require credit card issuers to mail paper statements or deliver electronic statements (e-statements) at least 21 calendar days before the minimum payment due date, the grace period is usually about three weeks. If your statement is issued on the 31st of January and your payment is due on the 22nd of February, the grace period is the time between both dates. You will lose the grace period if you don’t pay your entire statement balance by the due date. The consequences of losing the grace period can be significant. Not only will you have to pay interest on the part of your balance you don’t pay off, you’ll also have to pay interest on new purchases as soon as you make them.

Also, the grace period usually does not apply to cash advances or balance transfers. Unless you are eligible for a 0% APR promotion, you will pay interest on these transactions from the day you incur them.

With some other types of bills, “grace period” refers to a time between the payment due date and the payment delinquent date when a late fee or other penalty applies. For example, while mortgage payments are due on the first of the month, there usually is no late fee as long as the payment is received by the 15th. A credit card grace period does not work this way; it does not extend your effective on-time payment window past the payment due date. You must pay your bill by the actual due date to avoid interest and late fees and retain your grace period for the next billing cycle.

RELATED TERMS
  1. Billing Statement

    A billing statement is a monthly report that credit card companies ...
  2. Late Fee

    If an account holder does not make a minimum payment by a required ...
  3. Terms And Conditions (Credit Card)

    A formal statement of the rules and guidelines that govern the ...
  4. Post Date

    The post date is the day, month and year when a card issuer posts ...
  5. Credit Card Balance

    Credit card balance is the amount of charges, or lack thereof, ...
  6. Average Daily Balance Method

    A credit card accounting method where interest charges are based ...
Related Articles
  1. Personal Finance

    The Credit Card Balance Transfer Trap

    Before you transfer a balance to a credit card with a lower interest rate, understand how it affects new purchases and other fine-print traps that can cost you.
  2. Investing

    W.R. Grace – Maybe The Most Valuable Bankrupt Company Going

    Grace will emerge from bankruptcy as a great specialty chemicals company, but not a cheap one.
  3. Retirement

    Still Working? Here's How to Invest for Retirement

    Here's how three different portfolios impact your retirement savings while you're still employed.
  4. Personal Finance

    6 Major Credit Card Mistakes

    Avoid these pitfalls to keep your credit score healthy and your debt under control.
  5. Personal Finance

    Everything You Need To Know About Credit Card Rates

    Understanding credit card rates will help you choose the right credit card, and avoid any unpleasant surprises.
  6. Personal Finance

    How interest works on a credit card cash advance

    Find out how cash advances and regular credit card purchases are treated differently, they may have different effect with regard to your repayment terms, minimum monthly payments, and interest ...
  7. Personal Finance

    Why Making Minimum Payments Gets You Nowhere

    Getting out of debt can be difficult, but paying off a minimum balance each month only makes things worse.
RELATED FAQS
  1. What's the difference between a grace period and a deferment?

    Learn the difference between grace periods and deferments and when each type of delayed-payment period applies to various ... Read Answer >>
  2. Do Flexible Spending Accounts (FSAs) expire?

    Learn if Flexible Spending Accounts (FSAs) expire, and the different ways they expire by providing a expiration date, grace ... Read Answer >>
Trading Center