Credit union cards: Weighing the pros and cons

Credit union cards might not get as much attention as popular cards from big issuers, like Chase or American Express. That doesn’t mean they’re not worth looking into. A card from a credit union can be not only an excellent option for those with lower credit scores, but also a finishing touch to a card enthusiast’s strategy.

I got a credit union card last month with good credit and some of the best credit cards already in my wallet. Now, it has potential to become one of the most valuable cards I have because of how well it matches my spending.

Read on to learn about credit union credit cards and their pros and cons and to see if this type of card could be a good choice for you.

Credit union card pros

The list of pros regarding credit union credit cards is long – see if any or all are appealing to you.

The fees and interest rates tend to be lower

Credit unions are member-owned nonprofit organizations, and the entire system works slightly differently from banks. Because of that, you may get lower interest rates as well as lower fees.

Annual fees, foreign transaction fees and late fees are also lower at a credit union versus a traditional bank. In fact, although 45% of traditional bank credit cards come with annual fees, only 10% of credit union credit cards do.

You may get great value from the card

It’s a misconception that only banks with large resources can offer generous credit card rewards and that credit unions can’t compete.

Of course, a credit union card isn’t likely to offer you premium benefits like airport lounge access or hundreds of dollars in statement credits. Still, if you like to earn cash back as much as I do, you may be surprised how much value credit union cards can provide.

Take the Affinity Cash Rewards Visa Signature® Credit Card that I have. I came across it while shopping for a credit card that would reward me for spending in bookstores (since being a bookworm can be an expensive hobby). What I got was more than just a great card for bookstores – it was the perfect finishing touch to my credit card strategy.

The Affinity Cash Rewards earns 5% back at bookstores, including Amazon.com (on up to $3,500 per month in purchases made at Amazon). Except for books, I do virtually all my shopping on Amazon. Imagine how excited I was when I got this card. This is an outrageously generous cash back rate, there’s no annual fee and no Prime membership is required.

Last year, I spent $2,168 on Amazon (I’m excluding grocery orders since I use the American Express® Gold Card for that). I also spend about $2,000 on books annually. If my spending stays the same, I’ll have earned over $200 in cash back with the Affinity Cash Rewards by my first-year card anniversary just in these two categories. But besides rewarding you for Amazon and book shopping, the card also offers 2% back at supermarkets, restaurants, gas stations and for eligible streaming and ride-sharing services, as well as 1% back on everything else. These cash back rates can put some popular rewards cards from major banks to shame.

Customer service will likely be excellent

One of the biggest advantages of credit unions is their focus on customers’ experiences.

This means you will typically receive excellent customer service and much more flexibility in terms of payments, because credit unions aim to support their customers and help them maintain financial stability.

Credit unions are local institutions that try to connect with a community, those who work for certain companies or have some specific mutual connection. As such, they focus on building trust and a brand within a community.

This, too, often translates to better, local customer service.

I was pleasantly surprised when I got my union credit card and received a call from the union’s customer service. It was a representative who had emailed me earlier letting me know she would be my point of contact in case of any questions. When she called, she asked me how my experience with the card was and whether I needed any help setting things up.

I have cards from some major issuers known for their great customer service, yet none of them were able to offer me this level of attention or a designated person I could contact.

You might find it easier to get credit

It’s usually easier for members to get credit at a credit union if their credit isn’t perfect.

This allows consumers with less-than-perfect credit an opportunity to get a quality credit card product even when more well-known cards might not be available to them.

Additionally, credit unions are more flexible with small businesses and their unique needs, such as gas cards for employees or multiple users on an account.

You may get a second chance if you get denied

Consumers with lower credit scores or even an average credit history can find it difficult to get a credit card from a bank. But if a credit union declines your application for a credit card, you can ask it to reconsider the decision.

Sometimes credit unions will grant your request and require you to enroll in financial education classes to make sure you learn to use it responsibly.

See related: How credit scores affect interest rates

Credit union cons

Most financial products come with some downsides, and credit union credit cards are no exception. Here are some things to consider before you apply for a card from a credit union.

Your other accounts are used as collateral

Perhaps one of the biggest downsides of using a credit union for a card is sometimes they may use a cross-collateralization system, which ties all your credit union accounts together.

For instance, if you have multiple loans at the same credit union and for some reason you can’t make a payment on one of them, it automatically gets secured by the other loans you have. Say someone put up a used car as collateral for a personal loan and they default on a credit card payment – that car could be repossessed to satisfy the credit card debt.

Luckily, that’s not always the case. It’s possible to get a credit union card without securing it with any collateral. Make sure to research various options and pay attention to terms to avoid getting a card on conditions you’re not comfortable with.

You must meet specific membership criteria

To get a credit card from a credit union, a customer must meet membership criteria. This can be a restriction on location, employment or a variety of membership eligibility requirements. For example, I was once rejected by a credit union in Dallas when refinancing my car loan because the union only serves U.S. citizens – no permanent residents (rude).

When you apply for a credit card at a bank, you usually don’t need more than the legal requirements, and your application depends only on your credit history and income.

On the other hand, many credit unions provide an option to become a member by paying a small fee if you don’t meet the membership criteria.

The application process may be lengthy

In my experience, getting approved by a credit union can be a bit stressful. I’ve dealt with this process three times – twice when trying to refinance my car loan and once when applying for a credit card – and each time has been a pain.

What takes five minutes when you’re applying for a card from a major issuer can take days and even weeks with a credit union. You can be asked to send your paystubs to prove your income and your utility bills to prove you live where you say you live, among other things. This slows things down considerably.

Customer service may not be available 24/7

Although a credit union may provide outstanding customer service, it might not be available 24/7.

For example, if you’re traveling and have a problem with your card, you might not be able to get in touch with the credit union’s customer service department right away.

See related: How long does it take to get a credit card? 

Decision time

While there are advantages to credit union credit cards, there are some downsides, too.

Membership can be exclusive, you’re not guaranteed card approval just because you’re a member, and the application process can be stressful.

On the upside, because credit unions don’t offer credit cards for a profit, members indirectly benefit from those credit cards – when credit unions make money, they can offer better interest rates, reduced fees and even valuable rewards.

Otherwise, credit union credit cards are just like big-bank credit cards.

You can use them for purchases, balance transfers and cash advances, and you must make at least the minimum monthly payment to keep your account in good standing.

In addition, most credit unions report your account history to Experian, TransUnion and Equifax, which is an extra incentive for making your payments on time as it can help you build credit.