Can I Use the Checks My Credit Card Company Sends Me?

Dear VPJ,

It isn't necessarily unwise to use checks sent by your credit card company. It is critical to understand the implications of using them, though.

Some credit card companies send their customers what they call "convenience checks." Using one of the checks is the equivalent of making a credit card charge, though it could come with additional costs (more below). That means you'll add to your credit card balance and must repay the amount, just as you would if you used plastic for the purchase. Lacking a plan to repay the debt would be unwise.

Does Using a Credit Card Convenience Check Impact Your Credit Score?

When you increase the balance on a revolving account such as a credit card, it can impact your credit utilization ratio. Your utilization ratio, or rate, is one of the most important factors in credit scores, right behind whether you pay your bills on time. Also called your balance-to-limit ratio, you can calculate this number by taking the total of all your credit card balances and dividing that number by the total of all your credit card limits; multiply by 100 to get a utilization percentage. Utilization rates higher than 30% can negatively impact your scores.

Ideally, you should pay your credit card balance in full each month. Doing so helps you avoid interest fees and helps keep your credit utilization as low as possible.

Using a Convenience Check Can Be Costly

You also should read the fine print before using one of the checks. In some instances, the checks are treated as a cash advance. That could mean you will have to pay additional fees or a higher interest rate on the check amount. If so, you would probably be better off using your card rather than a check that was included with it.

But, using a check can make good sense in certain cases. For instance, you could use a check to make a purchase from a business that doesn't accept credit cards.

Wise use of credit really isn't about whether you use a plastic card or a paper check. It is about asking yourself a few basic questions before making the purchase:

• Should you use credit or cash? Credit can be a valuable tool. Aside from convenience, using a credit card to make purchases affords you certain benefits, such as fraud protection. However, you should only use credit to make purchases you can afford to repay in a timely manner. Otherwise, it might be better to put off the purchase until you've saved enough to pay for the item directly, rather than take on additional debt.
• If you use credit, how and when are you going to pay back the debt? If you don't have a plan to repay the debt, you probably shouldn't use credit to make the purchase. When you carry a balance from month to month, you accumulate interest charges in addition to the original debt amount. Over time, it can become more and more difficult to manage your payments and pay the debt off.
• What are you willing to give up in the future if you use credit to buy the thing you want right now? Usually, buying something with credit requires a trade-off. If it's a large purchase and you don't have the funds to repay the debt right away, you may have to give up something in the future so that you can stick to the debt repayment plan that you are committing to when you make a purchase with credit.

Answer those three questions before using credit—and stick to your answers—and you will be using credit wisely.

Thanks for asking.
Jennifer White, Credit Education Specialist