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My Credit Card Company Just Sent Me a Blank Check. Should I Use It?

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If you have a credit card, then you will occasionally receive some checks in the mail from your card issuer. These so-called credit card checks often arrive in the mail unexpectedly, and cardholders may not even know what they are.

Several Names for the Same Thing

Credit card issuers may refer to these checks as “convenience checks” while others just think of them as “credit card checks.” They look like normal checks, and can be used anywhere checks are accepted, but they are really just cash advances in disguise.

Since these are cash advances, those who use these checks can incur all sorts of fees that they might not be aware of. First, there are the cash advance fees, which are typically 3%-5% of the amount of the check. In addition, the check will likely be subjected to a higher APR for cash advances, which is often in the 20%-30% range. Cardholders should view their product’s terms and conditions to learn exactly what these rates will be.

Furthermore, the balance incurred by these checks will not be eligible for any grace period. This means that interest will always be incurred from the time the check is cashed until the balance is paid off, and interest cannot be avoided by paying the statement balance in full. (You can see how long it will take to pay off your credit card balance using this calculator.) Another unusual aspect of these checks is that the minimum payment to the credit card account will be applied to the purchase balance, and only any amount above the minimum will be applied to the cash advance balance which is at a higher interest rate. So those who just pay the minimum balance will continue to incur interest charges at the higher cash advance rate.

Also, if you run up a higher balance because of using these checks, you run the risk of lowering your credit score, since your ratio of debt to available credit is a major factor in most scoring models. Ideally, you should keep your balances to 10% or less of your credit limit. You can see how your debt usage is affecting your credit scores by checking them for free on Credit.com.

The Risks of Credit Card Checks

In addition to being a very expensive form of credit, receiving these checks can be somewhat of a security risk. Credit card checks are a prime target for thieves who steal mail from cardholder’s mail boxes, and unused checks should always be destroyed before being discarded. If you would prefer not to receive these checks in the mail, you can contact your credit card issuer and request that they not be sent.

Should You Use Credit Card Checks?

On one hand, credit card checks can be useful when cardholders need to make a payment to a person or business that will not accept a credit card. However, the convenience offered can come at a very steep cost in the form of all of the interest charges and fees paid. While these costs may be less than the costs of receiving a payday loan, they are likely higher than nearly any other type of loan.

Alternatives can include services like PayPal which can issue payments to individuals, albeit with fees of between 2%-3%. There are also services that allow you to pay rent with a credit card, but also with some fees. Finally, homeowners may want to consider a home equity loan, which will offer lower interest rates and fewer fees than using a credit card check.

By understanding how these checks work, and what their costs are, credit card users can make the right decision when these checks appear in the mail.

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