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DYK: How to make use of the free credit period available on credit cards

The interest free period is only available when the credit card payments are made in full

Every credit card user gets 18-50 days after she makes a purchase to pay the credit balance. This is known as the free credit period. During this period, the bank does not charge the card holder any interest. If dues are not paid on time, most card issuing companies charge 22-48% interest per annum. This is also shown as a monthly rate, which looks low but actually isn’t. Here’s a look at free credit period and what should one keep in mind about using this facility.

HOW TO USE THE FREE CREDIT PERIOD?

The interest free period is only available when the credit card payments are made in full. This period is normally 18-50 days, depending on the card issuer. The period consists of 30 days of statement cycle and 10-15 days until payment due date. Don’t confuse your statement date with the payment due date. The date by which you have to pay your dues to avoid late payment interest is called the due date and the date on which your statement is generated is called the statement or billing cycle date. The statement will list both clearly.

If you buy anything closer to the statement date, you get a longer free credit period. For example, if your next due date is on 5 June and the billing cycle date is 18 May, then if you make a purchase on 19 May, this will be included in the next billing cycle instead of the current one. Thus, giving you time till 5 July, or 47 days, to pay for it.

Of course, if the purchases are spread out, all will not get 18-50 days of free credit period. It can only be done if the user times the purchases as per the billing cycle. But be mindful of the purchases you make to avoid over-leveraging and missing the payment as you will end up paying late payment charge and high interest charges on the outstanding amount. Also, it will impact your credit score. While your credit card usage helps to build the credit score, missing payments will have the reverse effect. Once the score is hit, it takes 9-12 months of good credit track record to build it up again.

THINGS TO KEEP IN MIND

Don’t go on a shopping spree around your statement date just to maximise your interest free period. Although the free credit period is given for the benefit of customers, most of the times it becomes a debt trap for many people. This is because people forget or don’t pay attention and end up defaulting on payments. So, if you are making payments on time, continue doing so. You can optimise the free credit period through planned buying on your credit cards. Also, if you have more than one card, you can align your purchases according to their billing cycles to get a longer period of making the repayment. But be mindful of the payment due dates.

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