Most of us focus primarily on interest rates when comparing credit cards, but an important factor to consider is the type of grace period that the card offers. A grace period is the amount of time after your statement end date before finance charges begin to accumulate on the purchases that you make in your current billing cycle. Most people are unaware though that credit card issuers have been shortening grace periods altogether for quite some time now.
- Full Grace Period
- Standard Grace Period
- No Grace Period
A full grace period lets you carry a balance from previous billing cycles without incurring finance charges on purchases made in the current billing cycle, assuming that you pay those purchases off within the standard grace period window of 20-25 days. Full grace periods are very rare, if they exist at all anymore in the industry. The last major credit card issuer offering a full grace period was American Express who rescinded that policy back in 2005. All major credit card issuers now charge interest starting immediately on any purchases made for cardholders also carrying an outstanding balance from a prior billing period. A standard grace period computes finance charges based on a customer’s average daily balance, including any new purchases. The new purchases made on top of any balance that’s carried over from previous billing cycles start accruing interest right away. The standard grace period effectively eliminates any grace period entirely because any new charges start accruing finance charges immediately.
A card with no grace period, on the other hand, will begin charging interest immediately, whether you paid the card off the previous month or not.
Years ago, the standard grace period provided by card issuers in the industry was 30 days. Card issuers then lowered it to 25 days, and today, if you look at the top 10 credit card issuers, the average grace period has dropped to 22 days and is moving rapidly toward an average grace period of only 20 days. Industry analysts anticipate that grace periods will only continue to shrink as card issuers look for more opportunities to grow revenue, and some analysts believe that they could be eliminated entirely in the not so distant future.
In the end, shortening grace periods represent yet another opportunity for card issuers to squeeze customers for additional profit — the shorter the grace period, the bigger the opportunity for card issuers. Along with the myriad of fees and penalties already being levied by card issuers, these shortened grace periods are just one more way card issuers are sticking it to consumers.
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