When it comes to credit card checks, read the fine print
Money鈥檚 tight this month, and you鈥檝e just received a couple of blank checks from your credit card company in the mail. You鈥檙e tempted to take advantage of the offer.
Stop.听First, you need to听know what you鈥檙e accepting.
You can usually use these credit card 鈥渃onvenience checks鈥� to transfer a balance from another card or loan, to make a purchase or just to deposit money into your bank account. But the terms of the offer 鈥� 0% annual percentage rate听periods, ongoing interest rates听and fees 鈥� may end up costing you money.
鈥淐onvenience checks are tied to your credit听card account,鈥� says听Bruce McClary, a spokesman for the National Foundation for Credit Counseling.听鈥淚t looks like a personal check.听You fill it out, sign it and cash it as a cash advance. You can write it to a retailer to purchase things. It鈥檚 very flexible in how you can use it. That鈥檚 the attraction for consumers.鈥�
Good check, bad听check
Credit card checks can help consumers if used wisely, McClary says.听鈥淚f the check is going to be used to pay off an account that is charging a higher interest rate and whose terms are less favorable than the convenience check,鈥� it听makes sense听to use it, he says. 鈥淭he 0% offers听are good.听You just need to be very sure of your ability to pay off your transferred balance in the time period.鈥�
They can also create financial headaches.听鈥淲here [consumers]听get into trouble is when they听expect they鈥檒l pay off the balance within the 0% time period, but something听unexpected happens and听they鈥檙e not able to pay it off,鈥� McClary says. 鈥淭hat can produce ugly scenarios, like being charged听going back to the beginning.鈥�
However you use a credit card听check, you鈥檙e tapping the听credit line on your credit card and adding to your balance. Here are some questions to ask before you fill out one of these checks. If the answers aren鈥檛 clear from the documentation that comes听with the checks, call your card issuer and ask directly.
What are the terms for using a check as cash?
Convenience checks often come with a 0% annual percentage rate for a certain amount of time. But this interest-free听period might听apply only if you use the check to transfer a balance to your card.
Make听sure that the 0% APR will also apply if you use听a check to make a purchase or a cash deposit into your bank account. Those uses might be听considered cash advances. Cash advance APRs can be 20% or higher and usually incur a fee of 4% or 5% of the amount you鈥檙e borrowing.听There鈥檚 also a limit on how much you can write the check for.
鈥淲hen used for a cash advance,鈥� McClary says, 鈥測ou鈥檙e charged the credit听card cash-advance interest rate. This is where you have to be very careful, aware of what听that means in terms of cost to you.鈥�
What does the 0% APR period听mean for purchases?
The interest rate听on convenience checks is tricky from the get-go. You might save some听interest upfront with the 0% APR 鈥� but that can actually end up听increasing the interest you pay on purchases.
Here鈥檚 why.听If you pay your balance听in full every month, credit cards typically give you an interest-free 鈥済race period鈥� on purchases. This means that when you make a purchase, interest doesn鈥檛 start accruing on it until after the听billing cycle closes and your next payment is due. Depending on when you make a purchase, grace periods can be as long as 50 days.
If you carry a balance on your card from one month to the next, however, you get no grace period, and interest starts accruing on purchases immediately. When you use a convenience check to transfer a balance, you鈥檒l have to pay off that entire transferred amount by the next due date, or you鈥檒l lose the grace period for purchases.听鈥淲ith some of the checks, you could be hit with interest charges as soon as that balance is put on your account,鈥� McClary says.
You won鈥檛 get hit with interest on purchases if you currently have a 0% APR in place on both balance transfers and purchases. That might be the case if you鈥檙e still in your introductory 0% period on a newer card and the issuer sends you convenience checks.
The Consumer Financial Protection Bureau recommends that you pay off any听balance you transferred at 0% during the interest-free period and that you don鈥檛 use the card at all until you鈥檝e paid off that balance.
Is there a balance transfer fee?听
Banks typically charge a fee to transfer a balance 鈥� 3% to 5% of each amount transferred, with a minimum of $5 to $10, depending on the card. If听you鈥檙e contemplating a balance transfer, check that听the听numbers make sense. If you鈥檙e transferring a $5,000 balance, for instance, it could听cost you $150 to $250. Also, most banks don鈥檛 allow you to transfer balances from other听accounts you have with that bank.
What is the credit limit on your card?
If the amount you鈥檙e putting on听your credit card with a check (plus any听balance transfer听fee) pushes you over听your credit limit, you鈥檙e in trouble. When you go over your credit limit using听a credit card check,听McClary says,听鈥渢he same things听happen as when you go over your credit card limit 鈥� penalty fees, penalty interest rates. You have to look听at your balance and know听how much of your credit line you鈥檙e using before you use the check.鈥�
Is there a 鈥榰se by鈥� date, and what are the terms?
Just like yogurt, these offers have听an expiration date. You have a specific period of time to make a transfer or use the check for a cash advance or to pay for merchandise. The terms of use vary. Sometimes a check written after the date will be听declined; sometimes the issuer听will听charge the regular APR on any check written after the use-by date. So be sure you know听the听terms.
Will credit card checks affect your听credit scores?
A credit card check shouldn鈥檛 hurt your credit scores as long as you manage听your credit card responsibly 鈥� paying on time and keeping your balance low.听鈥淏ut if you borrow a significant amount, which would change your debt ratio, or max out your credit line, you could send your score听in the wrong direction,鈥� McClary says.听
In addition, he says, 鈥淚f you鈥檙e using it to transfer balances from听other accounts, then closing those accounts, you鈥檒l have too much activity on your credit report, and that might be detrimental. You could听send your credit score into the basement.鈥�
Alternatives to credit card checks
Although you won鈥檛 get a 0% interest rate, taking out a personal loan or a home equity loan or line of credit may be a safer way to get cash.听听have lower interest rates than credit cards, depending on your credit score.听听also have lower interest rates, and the interest you pay on the loan is tax-deductible, just like mortgage interest.
If听you decide to accept the听credit card check offer, McClary says,听鈥測ou have to have a plan for the worst-case scenario. As attractive as the offer听is, you have to face the possibility that听you might not make it to the finish line. Have a plan for payoff if that were to happen.鈥�
If you don鈥檛 use the checks, make sure they go directly into the shredder.
Stop the offers
If you don鈥檛 want to be tempted with these offers, or if you simply don鈥檛 want them filling your mailbox and shredder, you can opt out. OptOutPrescreen.com is run by the Equifax, Experian and TransUnion credit bureaus and Innovis Data Solutions.听Go to听听or call 1-800-5-OPT-OUT.
Online and on the phone, you can opt out of solicitations for credit and insurance offers for five years. You鈥檒l need to fill out personal details, including your Social Security number.
If you want to opt out forever, you can initiate the request online, but you鈥檒l have to fill out and mail in the Permanent Opt-Out Election form, which you get on the website.
Ellen Cannon is a staff writer at NerdWallet, a personal finance website. Email:听ecannon@nerdwallet.com. Twitter:听.
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