You may be considering a credit union credit card as an alternative to getting a credit card from one of the major credit card issuers. Before you make the leap, it helps to be informed about the difference between credit union credit cards and credit cards from big credit card issuers
How Are Credit Union Credit Cards Different?
A credit union credit card is issued by a credit union. Credit unions are nonprofit organizations that allow members to borrow from pooled deposts at low interest rates.
Major credit card issuers, on the other hand, are for profit banks that must always keep their stockholders in mind.
Credit union credit cards often have lower interest rates, lower fees, and are more consumer-friendly than credit cards from major credit card issuers. Interest rates on credit union loans are currently capped at 18 percent. Federal law limits the interest rate for most credit union loans at 15 percent, but allows the National Credit Union Administration Board to raise the limit if it’s necessary for the safety of credit unions.
There is no federal limit on the interest rate for bank loans. Instead, interest rates are typically based on the market and competition, but there has once been a rogue credit card issuer that charged an interest rate of 79.9 percent. Of course, paying your balance in full each month allows you to avoid paying interest whether you have a credit union credit card or a credit card from a major credit card issuer.
Are Credit Union Credit Cards for Everyone?
Note that while there are some advantages to credit union credit cards, there are some downsides too. First, the general public can’t just apply for a credit union credit card as with a non-credit union credit card. You have to be a member of the credit union and membership is exclusive.
You typically need to be affiliated with a certain group or employer to join.
Because the credit union itself is a non-profit organization it doesn’t offer credit cards for a profit. Instead, members of the credit union indirectly benefit from credit union credit cards. When the credit union makes money, its able to reduce fees and offer better interest rates to members.
Credit card approval isn’t guaranteed simply because you’re a member of the credit union. The credit card issuer will still perform a credit check and review your income to determine whether you qualify for the credit card. Credit unions are often more lenient with members and may be more willing to give you a second chance if your credit card application is denied. This is a little tougher to do with a major credit card issuer.
All your credit union accounts are tied together, which means some accounts may become collateral for others. If you have a checking account and a credit card account with the same credit union, for example, your checking account balance may be at risk if you default on your credit card payments.
Otherwise, credit union credit cards are just like other credit cards. You can use them for purchases, balance transfers, and cash advances (if your card issuer allows).
You’ll have to make at least the minimum monthly payment on your balance to keep your account in good standing. Most credit unions will report your account history to the credit bureaus, which is an extra incentive for making your payments on time.