What Is A Grace Period?

Have you always thought a grace period was the time after your due date that you had to make a credit card payment without a penalty? Unfortunately, this is not the true meaning of the term. Here you'll discover just what this time period is and how it can affect your credit.

These days, with so many ways to pay your credit card bills, payments are expected to be received BY the due date printed on your bill. There are so many ways to pay your credit card

payment that creditors no longer accept "the postmark". If you don't think the mail will get your payment to your credit card by the due date, it's a good idea to consider other payment options.

The true definition of grace period in the credit card industry is the time period from your statement closing to your payment due date. During this period of time, finance charges do not accrue on standard purchases. Unfortunately though, balance transfers and cash advances more often than not, have no free time. Finance charges compound daily on both of these types of balances.

What happens if I miss my due date?

Besides a late fee, if you miss your payment due date, your grace period is taken away. The finance charges then compound daily, from the date your transactions took place or your statement closing date, until the date the payment is received by your credit card issuer. Basically the finance charges are retroactive.

Calculating finance charges in this manner allows credit card issuers the option to charge finance charges on the following statement also. These finance charges accrue from what was your payment due date, until the payment is actually in hand. It could be 1 day of finance charges or more, depending on when your credit card payment is received.

Always consider the grace period if you normally pay your credit card in full each month, you'll see two statements with finance charges if you're late once. Also keep in mind, that this free period is only on new purchases. If you're carrying a balance on your account from month to month, and just paying a part of the balance, you'll have no free time. You'll receive finance charges each month up to the date your account is paid off.

I hope this explanation better explains what a grace period is and clears up any misunderstanding. Keep in mind that paying late will not necessarily affect your credit bureau report unless you become 30 to 60 days past due, but it can affect your internal scores with that credit card issuer. Please contact me if you have any questions about this definition.

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