How Does the Credit Card “Grace Period” work?

Making good use of your Grace Period is an easy way to save money on your credit cards. Your Grace Period lets you not pay interest on your credit card statement for a short time, which can actually save you hundreds of dollars in the long run.

Here’s how it works.

The Overview

Your credit card has two key dates: the statement date and the due date

  • Statement Date: The day your statement is “finalized”, and the due date is calculated.
  • Due Date: The day by which you need to pay your balance.

To qualify for a Grace Period, you need to pay your balance to $0 before your due date. If you do, then in your next billing cycle, you won’t be charged interest on new purchases.

That means credit card companies will essentially be lending you money for free, for up to 4 weeks, because of the grace period.

Let’s Look at an Example

Let’s say that on November 1, you buy a new computer for $500. Your statement closes on November 10, with a payment due date of November 31.

Computer Purchase Example:

  • November 1: Bought $500 computer
  • November 10: Statement Date, showing a $500 balance
  • November 31: Payment Due Date, with a $50 minimum payment

If you pay your balance to $0 on November 31, then you will have “activated” your Grace Period for the December period. You won’t be charged interest for any purchases until December 31.

To really illustrate how this works, let’s look at a more detailed example. In this example, we’ll have two different scenarios: in one case, you paid your November balance off completely and got the December Grace Period, and in the other, you kept a small balance in November and lost your December Grace Period.

We’ll use a $2,000 flight purchased on December 1 for both of our examples.

Flight Example – With Grace Period

  • November 31: Paid balance to $0
  • December 1: Bought a $2000 flight 
  • December 10: Statement Date, showing $200 balance, $0 interest

In this example, because your paid your balance to $0 in November, you won’t pay any interest at all on your large purchase in December. As long as you pay your balance to $0 in December, you won’t pay any interest in January either.

Flight Example – Without Grace Period

Now, let’s take a look at an example where you didn’t completely pay off your balance.

  • November 31: Kept a small balance
  • December 1: Bought a $2000 flight
  • December 2: You start getting charged interest daily. You pay 0.055% per day (20% APR), or $1.2 per day on a $2000 balance
  • December 10: Statement date, now with an additional $9.6 in credit card interest

If you don’t have your grace period, you’ll start paying interest the day you spend the money, instead of waiting for the statement period to close.

Grace Period & Credit Score

There’s a common misconception that you need to keep a small balance on your credit card to improve your credit score. This just isn’t true.

If you pay your balance off completely, this is more or less identical to keeping a small balance on your credit card, from a credit score perspective.

However, keeping a small balance will cost you a lot of money in the long run. So we strongly recommend paying your small balances off completely, so you can take advantage of your Grace Period.

Saving the Most Money from Your Grace Period

You’ll save the most money on your Grace Period, if you time your purchases carefully.

Here’s the key idea: if you pay your balance down to $0, your grace period extends all the way until your next due date.

So let’s say your due date is on November 31, and you pay your balance off completely. The best day to make a large purchase, then, is on December 1st. 

This lets you not pay interest on your purchase for the longest period of time. Again, however, it’s recommended that you pay your balance back down to $0 by the end of your next due date, so you don’t start paying interest.

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