If you aren't the type of person who pays your credit card bill the day it arrives in the mail, you may want to reconsider. Consumer advocates warn of shrinking grace periods, and confusion about what a grace period even is.
If you assume your grace period is fifteen days after your due date before your interest accrues, think again. It may work like that with mortgages, but with credit cards, the grace period is the interest free period from the end of the billing cycle to the due date.
Money is often tight for Tom Andre, so when it comes to his credit card bill, he always tries his best to pay on time, and figures he has time to pay for purchases before his interest accrues - a grace period. "I don't pay the entire balance off in a month," he says. "I'm purely paying more than the minimum payment." Andre says he believes what many other credit card holders do. "Grace period, as far as I am aware, is considered a 15-day period after the due date."
You may have a fifteen-day grace period for your mortgage, but not with credit cards. The interest free grace period is only from the end of the billing cycle until the payment due date. Another thing that may come as a surprise is that many cards have no grace period at all. "Most people don't even realize when they carry a balance from month to month, when they revolve on their credit card, that they lose their grace period altogether," says Linda Sherry of Consumer Action.
Not good news for Tom since he carries a balance. And, grace periods are getting shorter. "What we've found is that continually over the years, grace periods are shrinking," says Sherry. "They've fallen from 25 days to 22 days on average."
Five of the top ten card issuers - including Tom's - now offer an average of only twenty days. The American Bankers Association says you have to remember that credit is a loan, so any grace period at all is a bargain. "Most loans charge interest from the date of the transaction," says Nessa Feddis from the ABA. "The credit card companies provide this interest free or zero percent loan opportunity. It's a good deal for customers."
However, consumer advocates argue that it's not only interest consumers need to worry about, it's the mail's turn around time. "If your due date is only 20 days after the closing of the billing cycle, the credit card company takes a couple of days to get your bill ready," says Feddis. "It's in the mail for maybe up to four days, then you get it, then you've only got 7 to 10 days to turn it around and get it back to the company."
If a bill is paid late, fees for late payments can run up to about $40, which happened to Tom on more than one occasion. The American Bankers Association says the industry is making it easier than ever for consumers to pay on time - especially if they have access to the internet. "They can receive their statements online. They can pay online or by phone and avoid any risk of delay caused by the mail," says Feddis. "Better yet, they can arrange to have their payments paid automatically."
Tom says he started paying his bill online to stay on top of things. He admits he never reviewed grace period conditions when he got his card. "It's fine print that I probably have never read in the package that I received," he says.
Credit card companies are required to send policy information when you are approved for a card, and all critical information must be included in a disclosure box that itemizes important information such as the grace period, interest rate, and applicable fees.