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Credit Cards : Grace Period

Another important factor to consider when you are looking at the terms and conditions of the credit card provider's solicitation is the grace period.  The grace period is the length of time, usually a specific number of days before the charge for the interest rate  fees to become operational.  A common length of time considered to be the grace period is 25 days. 

The credit card company may display a statement such as you may have 25 days from the date of the statement, so long as your balance from the previous billing period was paid in full by the due date of the previous statement.  The statement date each billing period must be displayed on the bill.

The grace period typically applies only to purchases which are made using the credit card during the current month.  It is definitely the exception, rather than the rule for credit card companies to offer a grace period when it is a cash advance transaction.  Usually the interest charges on cash advances begin with no grace period.  The same is true of balance transfers.  There is usually no grace period and the interest charges begin immediately.

Another feature in relation to the grace period is whether or not the new purchases are included in the calculation of the balance if the previous month's balance has not been paid in full.  It is common for credit card companies to not allow a grace period when there is any balance left over from the preceding billing period.

Some credit card companies however, allow a grace period for the new purchases, while calculating the balance on the basis of the prior billing cycle amount, either as an average daily balance, or prior month ending or some other computation. 
The calculation method will make a difference in the amount of the bill and the amount of the minimum monthly payment, as well as the amount applied against the principal.

If you are not given a grace period for your new purchase during the current billing cycle, you will be assessed an interest charge upon purchasing the item.  If your previous balance has not been cleared you will be assessed interest on the previous balance as well.

In order to determine the method in which the balance for purchases is computed, check the credit card application form and find the information under 'balance computation method'.  It will tell you whether new purchases are to be excluded or included.  

As stated, The options on the grace period can make the difference of an entire month of interest assessed on a new purchase.  You will want to find a credit card company which has the longest possible number of days before interest charges are applied to the balance. 

 You also should strive to find a card solicitation which doesn't include the new purchases into the balance computations. These small factors may not seem like they will make much difference, but they certainly can add up over the course of a year

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