How Credit Card Grace Periods Work

Key takeaways

When your credit card is in a grace period, you won't get charged interest on purchases until after your due date.

If you pay your credit card statement balance in full by the due date every month, your grace period continually renews, and you will never pay interest on purchases.

A credit card grace period, when you have one, is a minimum of 21 days.

Credit cards are famous for high interest rates. But if you pay off your credit card in full each month, the interest rate becomes purely academic, and you'll have a good amount of time to pay for purchases without interest. That's because of the credit card grace period.

When there's a grace period in effect, you are not charged interest on the purchases you make. The grace period starts with the 21 days between the date your credit card bill is generated the due date of that bill. It's a relatively simple concept, but it can be a little tricky to explain, because whether you have a grace period this month can depend on what you did last month and the month before it.

Grace periods are based on billing cycles

Credit cards operate on a monthly billing cycle, and there are two important dates involved:

The statement closing date. This is when the credit card company tallies up all your account activity from the past month — purchases, payments, cash advances and so on — and generates your credit card statement (that is, your bill). The statement is usually available online as soon as it's generated. Unless you've selected a paperless option, it will also be mailed to you. Any transactions that occur after the closing date will appear on the next month's statement.

The payment due date. Under federal law, your due date must fall on the same day of each month, and it must be at least 21 days after the statement closing date. (So while your due date won't change, the closing date might adjust from one month to the next to allow for the required 21 days.)

When you get your credit card bill, it shows two key figures:

The statement balance. This is the total amount you owed on the closing date — the day the statement was generated. By the time you actually get your bill in the mail, your "current balance" might be higher than the statement balance if you used your card after the closing date. But for the purposes of your grace period, all that matters is the statement balance.

The minimum payment. You must pay at least this amount by the due date. If you don't, you'll get hit with a late fee.

Here's where the grace period comes in. If you pay your entire statement balance by the due date, then a grace period takes effect for the next billing cycle. Once the grace period starts, you will not be charged interest on new purchases until that cycle's due date. The credit card company is essentially lending you money for free. And of course, if you pay that cycle's bill in full by the due date, the grace period renews for another cycle. Do it month after month, and credit card interest is no longer a concern.