What is a grace period, and how does it work?

A grace period is a timeframe during which credit card issuers allow cardholders to pay off their new purchases without incurring any interest charges. Here's how it works:

  • Duration: The grace period usually lasts between 21-25 days from the end of a billing cycle. The exact duration of the grace period varies by card issuer and is typically mentioned in the cardholder agreement.

  • Eligibility: To be eligible for the grace period, you must pay your statement balance in full by the due date each month. If you carry a balance from one month to the next, you may lose the grace period benefit until you pay the entire balance in full.

  • New purchases: The grace period applies only to new purchases made within the billing cycle. It does not apply to cash advances or balance transfers, which usually begin accruing interest immediately.

  • Interest-free borrowing: By taking advantage of the grace period and paying off your balance in full each month, you can effectively borrow money interest-free. This can help you manage your finances more efficiently, as long as you use your credit card responsibly.

  • Impact on credit score: Regularly utilizing the grace period and paying your balance in full on time can positively impact your credit score, as it demonstrates responsible credit usage and timely payment habits.

Understanding the grace period and how it works can help you make informed decisions about your credit card usage, minimize interest charges, and maintain a healthy credit score.

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