Credit Union Credit Cards 101

Banks, Borrowing, Credit Cards

Do you prefer not to do business with banks, even when it comes to your credit card accounts? Your local credit union may be able to help with a credit card that fits your needs perfectly.

Credit union credit cards operate in the same way as those provided by banks. Since credit unions are not-for-profit institutions owned by their members and are not under investor pressure to produce profits as with banks, their credit cards often have advantages over those provided by banks. Here are just a few of these advantages:

  • Lower APRs – Typically, credit unions have lower interest rates than banks because they can focus on pouring profits back into their operations and passing reduced rates on to customers. Over time, studies by Pew Research have consistently shown that credit unions on average offer lower APRs than corresponding bank cards, and more recent data from Informa Research Services and the Credit Union National Association (CUNA) backs that up. Penalty APRs, where they exist at all, are also generally lower for credit union cards.

Federal law caps credit union interest rates at 18%. Banks have no such restrictions, and are free to charge higher rates as the market allows.

  • Lower Fees – The same principle that allows credit unions to charge lower rates applies to fees as well. The 2009 Pew study found that median credit union fee amounts for late and over-limit charges were $20, almost half that of the $39 median charge of bank cards.

According to the Pew study, balance transfers fees are also less prevalent among credit union cards than with bank cards, and are smaller where they do exist.

  • Customer Service – Because of their member-owned status, credit unions may be a bit more flexible in working with you through difficult times. A 2010 study by Forrester Research found that 70% of credit union members believed that their credit union put customers financial interests first as compared to 58% of respondents using a regional bank and far less for large bank customers (with Wells Fargo at the top with a 40% positive response).

While credit union cards offer some nice advantages, there are a few downsides as well.

  • Rewards Programs – Credit union cards may offer relatively simple rewards such as cash back options, and some even offer perks like airline miles. However, the rewards programs on bank credit cards tend to be more expansive and targeted because of their associations with various vendors.

Credit unions tend to pour their advantages into interest rate and fee reductions for all their members instead of directing them toward rewards programs.

  • Membership – The biggest hurdle with credit union cards is finding a credit union that you are qualified to join. Credit unions are member-owned by groups such as workers in a given industry, those with military experience, or residents of a specific area, and thus are not open to just anyone.

Membership requirements for some credit unions are relatively open and most people can qualify for at least a few credit unions, but your choices are limited. Furthermore, not all credit unions issue credit cards — as of 2012, approximately half of the credit unions in existence issued cards.

  • Cross-Collateralization – This is a fancy way to say that all of your debts within the credit union are tied together. In other words: when you have an unsecured debt like a credit card and a secured debt like an auto loan with the same credit union, if you were to default on your credit card the credit card debt would be secured by the auto loan — making eventual repossession a possibility.

In general, because of the lower interest rates and lower fee structures, credit union cards are well suited to cardholders who tend to carry a balance and have credit habits that rack up associated fees. They are less attractive to those who never carry a balance and prefer targeted rewards programs.

Is a bank or credit union the better credit card issuer for your needs? Assess your credit card usage habits honestly, review what properties are important to you, and shop around through the available card offers. You may find that a bank credit card is preferable, but don’t dismiss credit union credit cards out of hand. They may be your best choice.

If you want more credit, check out MoneyTips’ list of credit card offers.

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