Credit Card: What is a grace period and how does it work? | Mint

Credit cards are a great way to spend smartly and earn great offers on every transaction. By using a credit card, you don’t have to spend cash from your own pocket and the payment will be done by the lender which you will be required to repay on the bill due date. With a credit card, you get a grace period of usually 20-30 days.

What is a credit card grace period?

A credit card grace period is typically the time between the closing date of your billing cycle and the date by which the repayment must be made. At this time, you do not get charged with any interest if you repay the full outstanding balance before the due date.

Although this benefit applies to online transactions as well as online transactions, it does not apply on cash withdrawals since interest starts to accumulate instantly. It usually lasts for about one month, and you can use it for getting short-term overdrafts, or interest-free loans to repay the bill on time.

Key advantages of a grace period

Interest-free period:No interest will be charged for transactions made in the bill cycle, hence you can easily pay the bill without any interest charge.

Flexible payments:You get ample time to manage your budget and cash flow and then easily make the bill payment.

Credit score improvement:The grace period is an important part of your credit report and if you use it responsibly and make your payments on time, your credit score will also gradually improve.

Avoid late fees: With the grace period you can also avoid late payment charges as well as defaults as you actually end up clearing your balance within the repayment period.

Short-term liquidity:You can get credit quickly without worrying about immediate repayment. However, you are required to repay it within the specific time period.

How to regain lost grace period?

In case you do not make a full payment before the grace period ends, you will no longer be able to enjoy a grace period from the next billing cycle. Post that, your interest will be calculated on each new transaction and you will be required to repay the amount directly on the due date.

To restore your grace period you must ensure that you meet your bills on time and make full payments of your credit card bills. After some time most lenders do restore the grace period as a result of your regular repayment habits.

In conclusion, having a grace period gives you an advantage to sort your finances out before the due date and you should ensure that you spend this period wisely. Credit cards can also make you form a habit of them because of the ease of access and the rewards provided by the card.

However, you should try to limit your expenses and not exhaust your credit limit in order to make sure that you spend only the amount you can afford to repay easily. With this you can enjoy the benefits of a credit card and also not lose the grace period.

You should ensure that you stay regular with the bill payments and avoid any penalties as these can not only deteriorate your credit score but also can put you in a debt trap.

(Note: Using a credit card carries its own set of risks)