Account management

Credit union cards: Weighing the pros and cons

They tend to have lower rates and fees, but bank cards have better rewards. Read on to find out whether a credit union card is right for you


There are many advantages to getting a credit union card — but there are also downsides. Familiarize yourself with both so you can make a sound financial decision.

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In your search for a credit card, you might be considering one from a credit union instead of a big bank.

Known for being community-focused and customer centric, these member-owned, nonprofit institutions don’t have to deal with stockholders’ input — like big banks do — when making decisions.

And because they are member-owned, their customers borrow from pooled deposits, typically at low interest rates.

It’s important to know that credit unions require membership, which is based on things people have in common. This could mean you work for the same employer or share the same occupation, live in the same geographic location, share the same religion or you’re a relative of a member.

Some credit unions allow anyone to join, as long as they join an organization. For example, NASA Federal Credit union is open not only to NASA employees and retirees, but to anyone who gets a free membership to the National Space Society.

A credit union card might be a great choice, but before you sign on the dotted line, familiarize yourself with its pros and cons.

See what the experts have to say, then decide if a credit card from a credit union fits the bill for your financial situation.

See related: Credit union and regional bank credit cards

Credit union card pros 

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

The fees and interest rates tend to be lower 

As noted, credit unions are member-owned non-profit organizations, and their entire system works slightly differently from banks.

And because of that, you may get lower interest rates as well as lower fees, said licensed insurance agent and co-founder of Carsurance Tony Arevalo.

Bank credit cards offer interest rates to consumers — depending on their credit ratings — that often surpass 20 percent (as of Aug. 28, the average credit card APR was 17.68 percent), but there is an 18 percent interest limit for credit unions.

Annual fees, foreign transaction fees and late fees are also lower at a credit union versus a traditional bank.

In fact, although 45 percent of traditional bank credit cards come with annual fees, only 10 percent of credit union credit cards do, according to Tom Buckland, owner of HQ SEO and Ghost Marketing in the U.K.

See related:  How to switch to a new credit card from the same bank

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.

Also, if you get rejected for a loan or a credit card, you can ask them to reconsider the decision, Arevalo noted.

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 and local customer service.

And if a problem with a credit card arises, a credit union may provide a better customer service experience than a big bank.

See related:  Credit card application rejected? 3 steps to getting next one approved

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 for additional consideration.

And that’s great, because it allows consumers with less-than-perfect credit to make a solid case for consideration.

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.

You may get a special offer

“Credit unions often offer promotions, such as special rates, and you can find out about them while you make your checking deposit,” said Corey Vandenberg, a mortgage banker in Lafayette, Indiana.

These types of credit card offers can include 0 percent introductory APRs.

Offers for other financial products can include cash for member referrals, “no payment for 90 days” loans, discounted closing costs on mortgages and more.

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, Vandenberg said.

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

Credit union cons

Most financial products come with some downsides, and credit union credit cards are no exception. Review these negatives and decide if any is a dealbreaker.

Your other accounts are used as collateral

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

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.

“This means that your assets are ‘collateral,’ and you may not be able to own them until you pay off the debts,” Arevalo pointed out.

For example, 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.

You must meet specific membership criteria

In order 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.

And not everyone who wants a credit card from a credit union meets those eligibility requirements.

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.

Bank-issued cards offer better rewards

Banks with large resources can offer generous credit card rewards, but credit unions usually can’t compete with them.

If you don’t mind a no-frills credit card, you’ll likely be fine with a credit union one, but if you travel often or want to earn rewards, a bank credit card would be better.

Credit union cards typically offer customers lower credit limits

Credit unions typically issue cards with lower credit limits than larger banks.

And that means if you use your card for most of your purchases you could quickly run out of credit.

Additionally, if you’re planning to cancel one card and replace it with a lower-limit credit union card it could increase your credit utilization and consequently lower your credit score.

Customer service may not be available 24/7

Although a credit union may provide outstanding customer service, it might not be available 24/7, said Robert Livingstone, president of Ideal Cost, a national credit card processing company that helps businesses reduce their card acceptance fees.

“If you’re traveling and have a problem with your card, you’re pretty much out of luck if you can’t get in touch with the financial institution’s customer service department,” Livingstone said.

Decision time

Note that 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 a credit union ties all of your accounts together.

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 and reduced fees.

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.

See related:  Guide to minority-owned credit unions

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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