Convenience Checks, Explained

Throughout the year — and particularly during the holiday season — many credit card companies mail customers “convenience checks.” Although these unsolicited checks appear in the mail throughout the year, they proliferate around the holiday season, when customers in search of year-end cash might be tempted to use these checks.

Before you sign the dotted line, make sure you understand the fees and fine print associated with convenience checks.

What Are Convenience Checks?

Convenience checks – those checks that your credit card company sends you in the mail – are linked to your credit card account. These checks can be used to “borrow” cash against your revolving credit line.

Convenience checks can either be used in lieu of a credit card, to make a purchase, or they can be used as a cash advance. (Write a check to yourself, take it to the bank, and cash it. Voila – instant cash advance.)

What Do They Cost?

There are three major drawbacks that make convenience checks an expensive option:

1) High Interest – The interest rate on your convenience check will most likely be higher than the interest rate on your credit card. It’s likely that the interest rate will be at least 5 percent higher, and it’s not uncommon for the interest to be as much as double your standard credit card rate.

Typically, credit card issuers charge the “cash advance” interest rate for convenience checks (even if you’re using the check to make a purchase from a merchant rather than withdraw cash).

Your cash advance rate is written in your cardmember agreement (that thick packet that your credit card issuer mailed you when you opened the card).

2) Immediate Interest Charges – Although your credit card includes a “grace period” before interest accrues, most convenience checks don’t offer such a term.

If you swipe a credit card, you might enjoy up to two months before interest kicks in. (You’ll have the length of time before the statement’s closing date, plus an extra 25 days after the statement close date, as an interest-free grace period.)

If you sign a convenience check, though, interest starts accruing from Day One, just like it would for a cash advance.

3) Transaction Fee – Yes, that’s right. In addition to charging a higher interest rate that accrues immediately, you’ll most likely get charged an additional fee to use the convenience check. This fee can be as high as 5 percent of the total amount.

4) Stop Payment Fee – If you write a check, but you want to “stop” or cancel the check before the receiver deposits it, you’ll likely have to shell out for a “stop payment fee.” (In fairness, though, most banks also charge stop payment fees.)

Other Drawbacks

Utilization ratio — The amount you charge on a convenience check counts against your total credit limit. The more money you charge, relative to your limit, the more damage you’re likely to do to your credit score.

Credit scoring agencies examine a factor called your “utilization ratio,” the proportion of money you’re borrowing relative to your total available limit. The more you borrow, the riskier you seem, and the lower your credit score drops.

Lack of Protection – Many of your consumer rights are protected by the Fair Credit Billing Act when you pay with a credit card. Using a convenience check doesn’t offer the same protections. (In fairness, though, neither does using a regular check, a debit card, or cash.)

The Bottom Line

Convenience checks come with high costs and loads of fees. Proceed with caution.