5 things to know before using convenience checks

Most people who have a credit card have received convenience checks in the mail, but they aren't like the checks that came with your checking account. Checks drawn on checking accounts are interest-free, since you already have the money you're spending. Convenience checks, on the other hand, are loans, or cash advances, against the credit line on your credit card.

Before using a convenience check, make sure you understand the following finer points on how they work:

1. Higher interest rates. Convenience checks typically charge a higher APR than regular credit card purchases. Some might offer a low introductory rate, which is usually the case with balance transfer offers, but be sure to read the fine print about how long the introductory rate will last and how high the interest rate will be after it expires. Know your APR.

2. Interest charges begin immediately. With your regular credit card purchases, you have a grace period where you aren't charged any interest. As long as you pay your balance in full by the due date, you don't pay interest. Convenience checks, on the other hand, start charging interest as soon as the check is cashed.

3. Transaction fees apply. Besides interest, you'll pay a one-time transaction fee of up to 5 percent. Low interest balance transfer offers typically include transfer fees as well. There's often a minimum transaction fee. For example, if you used a convenience check for a $30 purchase and it came with 3 percent transaction fees ($0.90) and a $10 minimum transaction fee, you'd pay $10 for the $30 check. That's 33 percent interest.

4. Less available credit. Convenience checks are loans from your credit line, so using a check lowers your available credit. There are two important factors to consider. First, your credit line could be lowered by your credit card company before the check is cashed, which means you'll either bounce the check or be charged fees. Make sure you know your credit limit by calling the financial institution to confirm. Second, if you use up too much of your available credit, it could negatively affect your credit score. Credit utilization, or your ratio of debt to available credit, is part of how your score is calculated.

5. Fewer consumer protections. When you make a purchase with your credit card, you're entitled to protections against purchasing defective items. When you use a convenience check, you no longer get these consumer protections.

If you decide not to use your checks, make sure you shred them before tossing them in the trash. Blank checks are an open invitation for thieves, and convenience checks might give them access to your credit line.

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