Your credit card company absolutely loves you for being a loyal, punctual, bill-paying customer, and now wants to show you its appreciation by making you a fantastic limited-time offer. In a letter personally addressed to you and highlighted in red, you’ve been invited to use an enclosed set of credit card convenience checks however you please. They require only your signature and the amount of each check to be filled in. Make the check out to yourself or to your favorite merchant. It doesn’t matter, you’ve been granted the power of the pen!
Then, let your imagination run wild: Buy a new set of Callaway golf clubs, put a down payment on an Audi R8, pay for some Botox injections, or fund a lost weekend to Vegas. With these checks at your disposal, the world is one big oyster ready for your consumption.
What will be more difficult to swallow, however, is learning how dangerous convenience checks are to your financial health. If convenience checks were chemicals, they would be listed alongside lead, radon, mercury, asbestos and a list of other extremely toxic substances.
The best thing you can say about convenience checks is that the first three letters of convenience spell “con,” as in, you’re conning yourself if you think convenience checks are a solution to your consumer purchases or money-management problems.
- Legal tender or lethal tender?
- 10 reasons convenience checks are extremely dangerous
- 1. High fees
- 2. High rates
- 3. Often, no grace period
- 4. Tricky promotional offers
- 5. Confusing rate structure
- 6. Putting credit and credit score at risk
- 7. Checks not always accepted
- 8. Less protection on purchases
- 9. Heightened risk of identify theft
- 10. No points, no extras
- Calling convenience checks what they truly are
Legal tender or lethal tender?
On the surface, convenience checks seem harmless enough. You can use a convenience check, which is linked to your credit card account, to make purchases or take cash advances with your credit card.
To make a purchase, simply write a check for the purchase amount to a merchant and sign the check. Your credit card company pays the merchant when the check is cashed, and the amount of the check is deducted from your card’s credit line.
To give yourself a cash advance, simply make out the check to yourself and cash it. What could be simpler!
10 reasons convenience checks are extremely dangerous
Surely, the person who first said that if something appears to be good to be true, it probably is, must have been referencing convenience checks. As tempting as it might be to put your signature on one of them, here are 10 reasons why you shouldn’t:
1. High fees
Just for the privilege of writing a check against your own credit card account, you can be charged 3 to 5 percent fee. So, writing a $1,000 check, at 5 percent, could set you back $50. That’s not smart, that smarts, as in ouch! Fees taking this big a bite can easily offset any attractive promotional interest rates you might receive.
2. High rates
Like credit cards, convenience checks are unsecured debt. In other words, if you don’t pay them off, you’ll tarnish your credit rating, but at least you won’t lose your house for nonpayment. That’s a bit of good news.
Thus, if the rates for using convenience checks were the same as they were for credit cards — which averaged 11.82 interest in August, according to Federal Reserve data — you might be able to live with that. However, when you write a convenience check, you basically take a cash advance against your credit card. Therefore, the purchase is subject to the cash advance interest rate, which is typically double (somewhere in the 24 percent range) your credit card purchase rate.
3. Often, no grace period
Unlike credit cards, which might give you at least a couple of weeks to repay your balance interest-free, convenience checks often begin charging you interest as soon the checks post to your account.
4. Tricky promotional offers
Many convenience checks issuers will offer a promotional period with a lower interest rate. That’s fine, and could be a period during which you could transfer a higher credit card interest balance to the new lower balance. Should you follow this balance transfer strategy, you need to know how high the annual percentage rate (APR) will reach when the promotional period expires and if you will be able to pay off the transferred amount before the new higher rate kicks in.
5. Confusing rate structure
APRs on convenience checks can vary from check to check. Imagine if each time you pulled out your credit card to make a purchase, you didn’t know the interest rate you’d be charged. That’s a mind-boggling notion, but you can never assume a batch of convenience checks all have the same rate. So to be safe, each time before using any convenience check, you need to call your issuer first. How inconvenient!
6. Putting credit and credit score at risk
If you write a couple of convenience checks, you could easily approach or exceed your credit card limit. If your credit card balance tops 30 percent, you could see a lowering of your FICO credit score.
7. Checks not always accepted
Your issuer can arbitrarily decide you’ve been using too much credit and decline payment. You can usually find these caveats in the fine print of your agreement. Because your checks are linked to your credit card, you issuers could also lower your credit card limit or decline future credit card transactions.
Of course, writing suddenly “bad” checks could trigger overdraft fees from your bank, returned-check fees from others, and over-limit fees from your card issuer.
8. Less protection on purchases
Due to the Fair Credit Billing Act, if you purchase a defective product with your credit card, the issuer may grant you a refund. This protection, however, does not extend to purchases made with convenience checks. If you receive a defective product that you purchased with a convenience check, you’ll have to try to negotiate a refund with the retailer, not your bank.
9. Heightened risk of identify theft
If you leave your checks out in plain sight or even too long in your mailbox, you increase your risk of identity theft. Therefore, take one of two options: Call the issuer and request to opt out of convenience checks or shred them after retrieving them from your mailbox.
10. No points, no extras
At least with credit card usage, you might generate cash back, airline miles or points that count toward an exotic vacation. With checks, you get zippo, no rewards.
Calling convenience checks what they truly are
After convenience checks arrive in your mailbox, you may be temporarily tempted to buy that shiny new “fill-in-the-blank” you’ve been wanting for so long. Convenience checks are hardly the blank check they appear or an invitation to start spending carte blanche.
Few products have been so ineptly named. On a par with such euphemisms as “temporary negative cash flow” when you’re broke or “economically disadvantaged” when you’re poor, “convenience checks” should be labeled for what they are, “inconvenience checks,” unless you enjoy paying exorbitant fees and rates without sufficient rewards for the added risks you’re taking.
Peter is a staff writer at MyBankTracker.com who covers banking, personal finance, investing and homeownership.