DYK: You get three days grace period to pay your credit card dues

The Reserve Bank of India (RBI) recently tweaked the credit card due date norms. On 16 July, it came out with a circular advising credit card issuing companies to give customers three more days from the payment due date to pay their credit card bills.

THE CHANGE

RBI has advised banks to report a credit card account as ‘past due’ to credit information companies (CICs) or levy penal charges and late payment charges only when a credit card account remains ‘past due’ for more than three days. It also said that to bring in greater credit discipline and to provide operational flexibility to credit card issuers, the ‘past due’ status, for the purpose of asset classification, would be reckoned from the payment due date mentioned in the monthly credit card statement. Furthermore, a credit card account will be treated as a non-performing asset if the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the due date.

WHAT IT MEANS FOR YOU

First, you get a grace period of three more days to pay the dues. Second, you get an extension of three days before your credit card account is recorded as ‘past due’—something that can affect your credit worthiness. Say, the due date of the credit card bill statement is 16 August. From now on, you will have a grace period till 19 August. This means if you pay the bill any day from 16 August to 19 August, a late payment fee or interest charge will not be levied. However, if you pay the bill on 20 August, the bank will calculate interest from 17 August till the day you make the payment and charge a late payment fee as well. At present, too, some banks unofficially give their customers some grace period to pay their bills. For instance, if 16 August is the due date and you pay the bill on 17 August, late fee and interest may not be charged. However, for this, the customer may have to inform the bank by calling the customer care or by visiting the bank branch. However, this kind of flexibility may be offered only to some customers, and the decision is up to the bank.

The central bank has also said that only after the three-day grace period can the card issuing company report the credit card as past due to the CIC. Since credit reports and scores play a big role for lending purposes, with a grace period of three days, the card user has more time to pay her bill before a late payment lowers her credit worthiness. The customer is now given the benefit of doubt that she is late in paying her bill due to some unavoidable circumstances such as a technical glitch.

Such a regulatory mandate also brings about uniformity in the way credit information data is transmitted. So, say, there are two customers, A and B, from two different banks. Both pay their bills one day after the due date. Unofficially, customer A’s bank gives her a grace period, whereas customer B’s doesn’t. In such a situation, while A’s credit score is maintained, B’s credit score will be hurt. With a standard, and official, grace period, both customers get the same benefits.