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Four Things To Know About Cards With Deferred Interest Rates
This type of credit card isnt new. You may have seen ads on television, online, or in retail shops for promotional rates like zero-percent interest for the first year. No matter where the credit cards come froma medical office or a mall storethey have a few features in common. Heres what you need to know:
The Credit Card Act Of 2009
The Credit Card Accountability Responsibility and Disclosure Act was passed by Congress and signed by U.S. President Barack Obama on May 22, 2009. The act “builds on the strong first step taken by the Federal Reserve toward improving disclosures and ending unfair practices.”
Before the act was passed, banks could raise interest rates without warning, vary due dates from one month to the next, and charge inactivity fees if a customer did not use the card.
According to the White House Fact Sheet, some critical elements of reform in this law include:
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How A Grace Period Can Help You Avoid Interest Chargesand How To Get It Back If You Lose It
If youâre looking for ways to avoid unnecessary expenses right now, itâs worth learning about credit card grace periods.
A credit card grace period can give you a little bit of breathing room between when you use your card to make a purchase and when you actually have to pay interest. And if you use it correctly, a grace period could help you avoid paying any interest on your purchases.
How Billing Cycles And Grace Periods Work
The credit card billing cycle can be confusing. Every month your credit card statement has a due date, and that is the only thing most people pay attention to.
You should also be aware of the statement date, which is 21 days before the bill date. This is the date the credit card issuer takes a snapshot of your account, adds up all the transactions , and creates your bill for the month.
Any purchases made after the statement date will appear on the next months credit card bill.
You should always pay your credit card bill in full before the due date every month. This keeps your credit score high and prevents you from paying interest.
If you dont pay your bill in full every month, you will pay interest on the outstanding charges after the due date .
Essentially, your credit card issuer loaned you money for those 21 days, and if they dont get their money back before the grace period is over, they start charging you interest until you repay the loan.
An important thing to note is the grace period only applies to normal credit card purchases. If you take out a cash advance on your credit card, the interest starts accruing right away and is normally at a higher interest rate than a normal credit card purchase.
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Can You Lose Your Credit Cards Grace Period
It is possible to lose your credit card grace period if you dont make on-time payments in full each month by the payment due date. If you lose your grace period, youll be charged interest on the remaining portion of your balance. In the new billing cycle, youll also owe interest on any new purchases on the day the transaction takes place. This can lead to you falling into a debt cycle, which isnt easy to get out of .
Luckily, issuers usually restore grace periods once youve paid your outstanding balance and are back to making full on-time payments for a month or two.
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What Is A Credit Card Grace Period
If the idea of paying doesn’t sound fun, you’re in luck. As long as your card has a credit card grace period and you can cover the bill, you’ll never have to pay interest fees again. All you need to do is pay your monthly balance in full before the end of your grace period. How does it work? This guide to credit card grace periods lays it all out.
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Am I Responsible For My Spouses Credit Card Debt
If youre responsible and pay your credit card bill in full every month, but your spouse carries a balance on their card, you might be concerned that youre responsible for their debt.
The answer to whether or not youre responsible for your spouses credit card debt is complicated. It depends on what state you live in, but in most states, youre not responsible for their debt.
However, if you divorce or they pass away, the debt may become your responsibility.
If you live in a state where your spouses credit card debt is considered your debt as well, a credit card balance transfer between spouses may help your debt situation.
You could transfer your spouses high-interest credit card debt to your 0% APR credit card and pay off the debt without adding any more interest to the debt.
Doing this has an impact on both peoples credit scores, and you should do your research before transferring part of your spouses balance to your credit card.
Example Of Using The Grace Period Feature
Grace period is a feature on credit cards to ease the payment burden. To make it easier for you to understand what a grace period is, let’s look at the following example.
Mr. Andre is a customer of bank A and has a credit card. He has a credit card bill every month on the 25th. In the agreement letter, it is written that the due date is on the 6th of the following month.
Bank A provides a grace period feature. If Mr. Andre wants to take advantage of this feature, he must make full payment on the 25th before the due date. Only then can Mr. Andre make transactions without worrying about interest from the 25th to the 6th of the following month.
On the other hand, if Mr. Andre is unable to pay off the bill by the date, then Mr. Andre cannot enjoy the grace period feature offered by bank A. and remains obligated to pay off this month’s bill along with the interest. With this, we can conclude that the new grace period can be used if we have paid off the previous bill.
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Avoid Carrying A Credit Card Balance
When you carry a balance on your credit cards, you’ll be charged interest fees based on your average daily balance. This means your balance will grow every day as new interest fees are added. Instead, try not to carry a balance. That way you can take advantage of your card’s grace period and avoid interest fees altogether.
What Is A Grace Period For A Credit Card
A grace period is the period between the end of a billing cycle and the date your payment is due.
During this time, you may not be charged interest as long as you pay your balance in full by the due date. Credit card companies are not required to give a grace period. However, most credit cards provide a grace period on purchases.
If your card gives a grace period and you are not carrying a balance, then you can avoid paying interest on new purchases if you pay your balance in full by the due date. If you lose your grace period by not paying your balance in full by the due date, you will be charged interest on the unpaid portion of the balance. You will also be charged interest on purchases in the new billing cycle starting on the date each purchase is made.
With credit cards, grace periods typically apply only to purchase transactions. If you use your card to get a cash advance or use a check you received from your card issuer, generally you must start paying interest as of the date of the transaction.
Tip: To keep your grace period, make sure to pay your bill in full each month and on time. If you pay in full some months, and not in other months, you may lose your grace period for the month that you dont pay in full and for the month after.
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How Is Carecredit Different From A Regular Credit Card
CareCredit is a credit card specifically designed for health and wellness needs. You can’t use it anywhere or for anything. Rather, it’s intended to pay for medical expenses at various hospitals, veterinary clinics, dental centers, and private medical practice firms, along with health care-related retailers and pharmacies. According to the company, this amounts to some 250,000 providers in all.
The card’s financing terms tend to be different from those of a regular credit card. Instead of an ongoing, revolving credit line and interest charges, it acts as a short- or long-term loan. Interest accrues retroactively as of the charge date if you don’t pay the full balance by the end of the promotional period.
Give Yourself Added Time Between Purchases
If you want to get even more usage out of your grace period, time your credit card purchases to take advantage of your cards billing cycle. Remember, your grace period begins when your billing cycle closes. So if you use your credit card for a large purchase at the beginning of your billing cycle, you have the full cycle plus the grace period before your credit card issuer will begin charging interest on that purchase. That could give you nearly two months of zero-interest borrowing.
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How To Apply For Carecredit
You can pre-qualify for CareCredit online by using its online service at CareCredit.com/Apply.
If you don’t want to go online, you can apply over the phone using the company’s toll-free number: 1-800-677-0718. There is an automated system available 24/7 or you can apply with a live agent between 9 a.m. and 9 p.m. ET, Monday through Friday.
You can also apply in person at more than 250,000 health care providers and select retail locations that accept CareCredit. CareCredit does not accept applications via fax or email.
Synchrony does not specify how it assesses applications or what the requirements are for their credit cards.
Interest Can Add Up Quickly
Lets look at how quickly interest can add up if you dont have a 0 percent APR offer. If you have an APR of 16.99 percent , your daily interest rate is approximately 0.05 percent. So, if your balance is $100 at the beginning of your billing cycle, by the end of the day, your balance will be up 0.05 cents to $100.05. Then the next day, you will be charged 0.05 percent interest again, but on the new higher balance of $100.05 which increases the balance to $100.10 by the end of the day. Then the cycle keeps continuing and the amount you owe in interest grows.
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Pick Your Credit Card’s Due Date
Some credit card issuers will allow you to select your statement due date, which can be helpful when you’re budgeting for a big purchase or simply trying to maximize your cash flow. While you can’t change it month to month, read the card issuer’s terms to see how often you can update it.
“You can use this to your advantage by setting the date to when it works for your inbound cash flow such as after your regular paycheck is deposited in your bank account,” says Beilby.
In addition to timing a credit card bill to your paycheck, picking a due date can allow you to have all your bills due on the same date to keep your finances organized, or permit you to stagger your bills to give yourself more flexibility.
You Can More Than Double Your Grace Period
If you time your purchases right, you can extend your grace period longer than the standard 21 days.
To do this, you need to know when your billing cycle ends and begins. If youre making a large purchase and need as long as possible to pay it off, make the purchase the day your billing cycle begins.
Using this strategy, you will have between 51 and 56 days to pay off that purchase interest-free.
For example, if your billing cycle runs from October 1st to November 9th, your due date for purchases made during that time period would be December 1st.
If you made a large purchase on October 1st , you would have two full months to pay off the expense before you have to pay any interest.
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When You Might Not Have A Grace Period
Certain types of credit card transactions, such as cash advances and balance transfers, may not allow for a grace period. Thus, these transactions begin accruing interest as soon as the money is posted to your account, assuming that you don’t have a 0% promotional rate in effect.
New purchases on a credit card may lack a grace period if you start the billing cycle with a balance. If you want to avoid paying interest on a transaction that doesn’t have a grace period, you’ll have to pay it off immediately.
Example Of Grace Period
On January 1, 2021, Tim took out a $10,000 loan to grow his small business. The following are the key terms within the loan contract:
- The principal of $10,000 is due on January 1, 2022
- A grace period of 15 days after the due date of January 1, 2022
- $500 late fee if the loan is not paid by the end of the grace period and
- Interest-free, but with a 10% weekly interest rate if the loan is not paid in full by the due date of January 1, 2022.
Consider the following scenarios:
How much does Tim pay under each scenario?
More Resources
CFI is the official provider of the Commercial Banking & Credit Analyst certification program, designed to transform anyone into a world-class financial analyst.
In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:
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How Credit Card Billing Cycles And Grace Periods Work
Grace periods on credit cards are different from the grace period for other loan products. For example, the grace period for a mortgage lasts about 15 days. If your payment is due on the first of the month, youd have until mid-month to make your payment before its considered late and youre charged potential late fees.
This is not how credit card grace periods work. The grace period for revolving credit which is what a credit card is comes before the payment due date. As such, credit card grace periods dont protect you from late fees. Rather, they give you a period of time in which you can avoid interest payments.
If you miss the date when credit card payments are due, your payment is considered late. Late payments may trigger penalties, and they can have a negative effect on your credit score if theyre reported to the credit reporting bureaus.
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Late 1 Day What Should I Expect
I totally forgot to pay my CareCredit account yesterday, but paid this morning .
Im concerned my credit score get dinged, is that the case?
I know there are Grace Periods longer than 21-days, but that isn’t the case here. I’m just wondering how this will effect me.
Late payments only appear on your credit report if they are 30+ days late. You may owe a late fee, but that should be about it.
The cards closing date was on 9/21, so the due date was yesterday . Also, there is no grace period over the due date.
We are paying off the balance on October 20th
I just wasn’t sure how a late payment of less than 30 days would effect the score itself.
I totally forgot to pay my CareCredit account yesterday, but paid this morning .
You mentioned CareCredit. I’m going to assume you are likely paying money on a X month 0% interest deal.
However since you made a late payment you defaulted on your 0% interest deal. They will now assess interest on your entire purchase for the entire term based on the original principal. You will continue to acrue interest until it is paid off.
CareCredit regular interest rate is normally high 25%~.
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What Credit Score Is Needed For Carecredit
Synchrony doesn’t specify what credit score is needed to qualify for CareCredit, and it doesn’t tell customers which it uses to get credit reports. Cards that work in a similar way, such as proprietary store credit cards, generally have low requirements when it comes to credit scores. This may make it easier for people with limited or poor credit history to be approved for a CareCredit card.
Its One Of Several Ways You Can Pay For Medical Expenses
The CareCredit Card is certainly an option for large medical expenses, but depending on your situation, you may want to consider other choices.
First, explore ways to lower costs. You may be eligible for discounts on certain procedures, health care products and wellness programs through your health insurance plan. Also, before you pay a medical bill, make sure youre being correctly charged, as errors can cost you. You may be able to negotiate a reduced cost with the provider as well.
Once you have your final bill, here are additional ways to pay:
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