Posted by Rex Dixon :: June 7, 2007 @ 6:24 amGrace Period is a term that credit card companies have established as a period of time where no interest is charged. To be financially responsible with your credit card, you as a card holder should take advantage of this time frame. Being aware of this time period on your particular card will save you money.
The way it works is that credit cards (in the United States) are compounded on nominal APR and it is not the same as EAR (Effective Annual Rate). The “A” in APR does stand for “Annual”, but in the world of credit cards here is how that is calculated. A common credit card quoted at 12.99% APR compounded monthly, the one year EAR is (1+.129949/12)^12-1, or 13.78%. Note that a high US APR of 29.99% carries an effective annual rate of 34.48%.
This is calculated on your balance at the end of your billing cycle. Where you can take advantage of the grace period is when you pay the balance by the due date. The credit card companies market the convenience of the payment method (to receive fees and possible new lending income, when the card holder does not pay), as well as the loans themselves.
This is how credit card companies make their money. Some credit card companies will require that your account must be paid off for two months in a row to obtain the discount. If the required amount is not paid, then the normal interest rate calculation method is still used. Time to dig out those credit card fine print brochures!
Your credit card is a gold mine for a bank when you don’t read the fine print or take advantage of the grace period. We are here to help you take advantage of the grace period on your card. If you have a 640 FICO score, and a great DTI, but you still have some credit cards that you have had to use for unavoidable emergencies, we’d like to help you lower the rates.
We have been saying it for two weeks now, and it’s not just a slogan. We mean it.
Better Rates. Together.
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