While you may have had your credit card for months (or even years), do you know how long your grace period is, or even what “grace period” means? If not, here’s the lowdown on what you need to know about this important credit card term.
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What’s a Grace Period?
The grace period is the period of time between the end of a billing period and the date your minimum payment is due, and during this time you may pay your credit card bill without paying interest—at least on new purchases. 1 However if you make just the minimum payment, or even a partial payment that exceeds the minimum payment but is less than the entire balance, interest will be charged.
For more information, see the Pricing section of your Discover Cardmember Agreement.
How is Interest Calculated
Your grace period will be no less than 21 days, in compliance with the Credit Card Act of 2009. 1 With Discover, your grace period will be at least 25 days from the end of the billing period, or a minimum of 23 days for billing periods that start in February. If you have a grace period, you should not be accruing interest charges. Here’s how it works:
Each day, the daily interest charge is calculated for transactions, including purchases, balance transfers and cash advances, using the daily balance plus the applicable daily interest rate.
The daily balance equals the beginning balance plus the daily interest charges on the previous day’s balance, plus new transactions and fees, less new payments and any credit adjustments. The daily interest rate is simply the rate charged for that transaction category, divided by 365. The daily balance multiplied by the daily interest rate equals the daily interest charge.
All the daily interest charges are added up to get the total interest charges for a billing period. Remember, you may avoid paying this interest if you pay off the full balance on your account before the due date. 2
What to Watch For
Cash advances and balance transfers don’t have grace periods the way purchases do. If you use your card for these transactions, interest will be charged on cash advances (including foreign currency cash advances) and balance transfers starting on whichever comes later: the transaction date or the first day of the billing period during which the transaction is posted to your account.
If you don’t pay your new balance in full and on time each month, your new purchases will not get a grace period. This means you’ll be charged the daily interest accruing each day.
Why You Should Know Your Grace Period
Knowing your grace period and due dates help you plan your payment schedule to avoid late fees and interest charges. Though your first missed minimum payment won’t incur a $27 late fee, subsequent missed minimum payments will. And if you’ve been charged a late fee during the prior six billing periods, the fee will be $37.
Payments made after the grace period are late payments, and they may affect your credit score. 3 This could impact your ability to get new credit, and also affect the interest rate you’re offered on new credit products.
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Make Your Payments on Time and Avoid Paying Interest
To help stay on track with making your credit card payments during the grace period, use Discover’s DirectPay feature to make your payment directly from your bank account. 4 Each month, you can choose to make the minimum payment, the minimum payment plus a fixed amount, a different fixed amount of your choice, or the full balance.
Familiarize yourself with the features of your grace period. Doing so may help you save money by avoiding additional interest and late fees as you make your payments on time.