Unlike a traditional loan, credit is a loan that does not charge interest from the date of the transaction. Interest only begins to accrue following the ‘grace period.’ Consumers are often confused about what a grace period is and how it works. Many people think that they have 15 days after the due date to make their payment on time. That’s how a mortgage grace period works - but not a credit card.

Credit card companies provide an interest free or zero percent loan from the end of the billing cycle until the payment due date - known as a grace period. “Most people don’t realize when they carry a balance from month-to-month, that they lose their grace period altogether,” said Linda Cherry of Consumer Action. If you’re able to pay off your credit card balance each month you essentially have used the banks money as an interest free loan.

But according to consumer advocates, grace periods are shrinking, from 25 days to as low as 17 days. Five of the top ten credit card issuers now offer an average of just 20 days. Watch for the disappearing grace period phenomenon! Credit card companies are required to send disclosure notices when changes are made to your interest rate, fees and grace period.

Posted in Credit Tips, Card Advice

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