Be Wary of Checks You Receive from Credit Card Companies

Cash advance convenience check in mailboxReceiving unsolicited letters and offers from companies in the mail is the norm for most of us. One of the most common form of spam letters are offers from credit card companies. Most people throw these out, but every now and then our interests are piqued. One version of a credit card spam letter is check, often times blank, from your credit card company, or a perspective company.

These blank checks are a Trojan horse. Often times credit card companies will call these checks a “convenience check” or just “credit card checks”. On the surface, it would appear that your card issuer is giving you free money. However, this is not the case. These checks are equivalent to a cash advance.  There is no free money involved, and you will be liable for the amount you purchase with these checks. Usually the purchase amount is added to your credit card balance, but on occasion these checks can be considered loans.

The trick of these checks is the fact that they are usually considered cash advances, similar to pulling money out of an ATM with your credit card. This means that you will be charged a percentage of the purchase amount, usually around 3 percent to 5 percent. You’ll be charged a fee simply for using the check, but it will be similar to just paying with your credit card. Even worse, credit card companies are legally allowed to charge you a higher interest rate. Usually credit card companies will charge between 20 percent to 30 percent interest on these checks, which could easily be above the interest rate on your credit card.

It gets worse. Because check payments are not considered the same as credit card payments, many of your credit card benefits will not be applied to the purchase. This is true despite the fact that the purchase will be credited to your account. Any rewards program you have will not go into effect for the purchase made with the “convenience check”. Moreover, the balance added from these checks do not have any grace periods, meaning interest will be incurred starting at the time the check is used. Unlike credit card payments, interest cannot be avoided by paying your balance off in full. You are guaranteed to be charged interest. To make matters worse, it will likely be the case that the interest payments on the check will be larger than your normal credit card interest rate payments.

It’s not always the case that these checks will destroy your finances. If you read the fine print, you may find that the interest rate on the check is lower than your credit card interest rate. But this will only be the case if your credit card interest rate is particularly high. Unfortunately, credit card companies have the legal right to send these kinds of deceitful checks. They prey on people who do not read the fine print and instead cash or use the check without thinking. The problem has become such a nuisance that even the Federal Deposit Insurance Corporation (FDIC), the institution that provides deposit insurance for all banks, has issued a warning about these letters. If you find one of these letters in your mailbox, be skeptical and read the fine print.

Posted on June 17, 2016 by in Credit Cards

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