Final answer:
The grace period allows credit card users to pay off their new charges without interest. Paying the full balance during this time avoids interest rates that can significantly increase debt. Maintaining full payments and a good credit utilization improves credit scores.
Step-by-step explanation:
The grace period provides the opportunity to pay off new charges on a credit card without paying interest. When you use a credit card, you're essentially taking out a short-term loan. If you pay off your charges within the grace period, you can avoid paying interest. If not, the remaining balance will be subject to interest rates that range from 12% to 18% annually, adding a significant amount to your debt over time.
Furthermore, consistently paying the full balance on time can improve your credit score. It also prevents the extra costs associated with minimum payments, which are part of a formula that includes a principal portion as well as interest. Hence, to avoid high interest rates, it is advisable to pay off the entire balance each month and maintain a good credit utilization ratio, which also affects your credit score.