By Ben Luthi
It's not every day that you get a blank check in the mail, but when you do, think twice before filling it out. Credit card companies often send out these "convenience checks" tied to your credit card account to encourage you to spend more. But should you use them?
How convenience checks work
When you need to make a purchase, fill in the blank check with the amount, and sign it. When the merchant cashes your check, the amount is charged to your credit card.
Some banks allow you to request convenience checks, but they mostly show up unannounced. You may get several checks on one card account and never receive any on others; it's all up to the banks.
Convenience checks often offer a 0% APR promotion lasting 6-18 months. You can use the check to pay off another credit card, buy something or just deposit it in your checking account. Situations where doing this would make sense include:
- You want to pay off a credit card with a balance transfer but don't want to apply for a new card.
- You're paying for a product or service but the merchant doesn't accept credit cards.
- You need to finance a large purchase but can't or don't want to pay it off immediately.
The checks typically expire after a month or two, and there may be a cap on how much of your credit limit you can use. If it doesn't list a maximum, your cap would be whatever available credit you have up to the credit limit on your card.
When you use a check, you'll see the transaction show up on your credit card account as usual. If there's a fee tied to the check, then that will show up separately. Convenience checks do not generate rewards like regular purchases.
Check the terms
Before you write the check, understand what you're getting yourself into. While you may be getting a 0% APR deal, that feature usually doesn't come free. Often, the credit card issuer will charge a fee based on the check amount – anywhere from 1 to 5 percent.
The paperwork that comes with the checks should also let you know whether it's a true 0% APR offer or a deferred-interest offer. For example, it's deferred interest if the terms say, "pay no interest if paid in full."
If it is deferred interest, you have to pay off the full balance before the promotion is over. Otherwise, you'll get charged interest on the full original balance. With true 0% APR offers, you'll only get charged interest on the balance left over after the promotion ends.
When Using Credit Card Convenience Checks is a good idea
"If used to pay off debt, convenience checks that come with low promotional rates work similarly to a balance transfer," says Matt Freeman, Head of Credit Card Products at Navy Federal Credit Union. "However, similar to balance transfers, consumers need to keep an eye on any transaction fees."
Doing a balance transfer works best if you have the means to pay it off in full before the promotional period ends. It's also a good idea to have an established emergency fund in case something unexpected comes up.
If you plan to use the convenience checks to make a large purchase, do so only if you need the item now and will have the cash to pay it off soon.
When Using Credit Card Convenience Checks is a bad idea
Even if you do have a goal to pay off the balance in full before the promotion ends, an unexpected expense can derail your plan. If you don't have an established emergency fund, you're taking a big risk.
Using a convenience check is also a bad idea if it doesn't offer a true 0% APR promotion. Deferred-interest promotions are expensive if you don't pay the balance in full by the end.
It's also not a good idea to use a convenience check if the transaction fee is high or you don't have a clear plan to pay it off before the promotional period ends.
Keep your credit in mind
Like any purchase or balance transfer, a convenience check uses up some of your available credit on the card. If you use too much, it could spike your credit utilization and drop your credit score.
"Credit utilization ratio accounts for about 30 percent of your total credit score," says Freeman. "If you use a convenience check to pay down existing credit card balances, it should have little to no impact. However, if you use it to pay for a large ticket item, you're raising your credit utilization ratio and ultimately lowering your credit score."
Experts recommend keeping your credit utilization below 30 percent to avoid a negative credit impact. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Should you use your convenience checks?
If the terms are favorable and you have a payoff plan, convenience checks can be a great tool to help you pay off high-interest debt or make a large purchase.
If the terms aren't good – for example, deferred interest, no 0% APR period or a high fee – you may want to consider some alternatives. A balance transfer card can help you pay down high-interest debt, and a personal loan can help cover a large purchase.