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Do all credit cards have a period of time after purchase where payment can be made before the cost is included in the average daily balance?

By , CardRatings contributor
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Question: Do all credit cards have a period of time after purchase where payment can be made before the cost is included in the average daily balance?

Answer: Yes, and two factors determine how quickly a charge shows up in your average daily balance: the settlement period and the grace period.

Settlement period

The credit card settlement period isn't controlled by your credit card issuer. Rather, it's a feature of the merchant accounts your favorite retailers use to process your credit card transactions. Submitting a purchase to your credit card company requires two steps: "authorization" and "capture." The process also explains why some purchases show up on your statement later than others.

Let's say you swing by a convenience store to purchase a sandwich and drink for 5 dollars with your credit card. The store's terminal authorizes your card for that purchase, telling your bank to drop your available credit by 5 bucks. Since you're getting delivery of your food right away, the cash register also tells your bank that it's capturing those 5 dollars into its virtual till. With most credit card issuers, that purchase shows up in your balance immediately.

The process gets more complex with restaurants and online retailers. At a restaurant, your waiter or waitress authorizes your credit card for the amount of your meal, plus an expected tip of as much as 30 percent. You'll write the actual tip on the house receipt, which means someone has to manually capture the correct amount later.

As you can imagine, some restaurants can take days to plow through that data entry, and the final bill won't show up in your balance until then. Likewise, most online shopping websites authorize your order when you check out, but the capture won't happen until days later, when your product actually ships.

You're not paying interest on those "pending" amounts, nor do they show up in your average daily balance. If you have an account with a really good online banking feature, like Capital One credit cards do, you can even submit a same-day payment from your bank account that will probably hit your account before your purchase does. It's a great way to take advantage of cash back rewards and other perks without killing your credit report by running up your balance.

Grace period

Your credit card's grace period determines how soon you'll pay interest on your purchase, but it doesn't necessarily impact the average daily balance a bank will report to the three major credit bureaus. Under the Credit CARD Act, you're got at least 3 weeks (21 calendar days) from the statement date to pay down a purchase on a consumer credit card before you start accruing interest.

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