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Getting a Credit Union Card: A Smart Move?

 
By Marcia Frellick
October 18, 2012

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Only about half the credit unions in the U.S. offer credit cards, according to data from the Credit Union National Association (CUNA). Yet credit union plastic is seeing significant growth.

The amount of money people were revolving on credit union credit cards grew 4.7 percent in the year ending June 30, 2012. That's double the 2.3 percent growth of the previous year, says Pat Keefe, spokesman for CUNA.

“We think it may be that [consumers] are feeling more confident and spending more,” Keefe says. “… Our economists expect households are releasing some pent-up demand for borrowing in general — autos, furniture and appliances — with an increase in spending as well.”

The rise of the credit union credit card may also be due to consumers' increasing frustration with big banks. Consumers are discovering that credit unions will typically charge less for costs that often come with bank credit cards, such as annual fees and late payment fees, according to Keefe.

So should you convert to a credit union? Here are some pros and cons to weigh before making the move.

Pros:

Annual fees are lower, less frequent: For the most part, credit unions don't charge annual fees for their more basic credit cards, Keefe says. They are more likely to be found on rewards cards, but even then, they are typically lower than banks' annual fees. October 2012 data on CUNA's daily comparison site show that credit unions average $27 in annual fees on rewards cards, while banks average $99.

Late fees are typically lower: Maximum late fees for paying late on credit union credit cards average between $22 and $25 as opposed to between $33 and $34 for credit cards issued by banks, according to CUNA. These average late payment fees are much more prevalent than annual fees among credit unions, but most credit unions charge a flat-dollar fee, rather than a fee based on the percentage of the payment due, Keefe says.

Most don't have fees for cash advances: Fewer than 30 percent of all credit unions offering credit cards charge fees for cash advances, Keefe says, citing data from CUNA's latest Credit Union Fees Survey.

You're a member rather than a customer: Credit unions are non-profit financial cooperatives owned by their members, as opposed to banks, which are in the money-making business and must answer to stockholders.

Overhead is lower: Credit unions generally are exempt from the taxes banks pay, and board members are volunteers elected by the membership, rather than salaried staff. There's less cost to run them, which is part of the reason they can charge consumers less.

Credit unions may be more forgiving with credit scores: According to first-quarter data from Experian, 2012 bank card originations show credit unions are opening credit card accounts to consumers who average a VantageScore of 761, while the entire market is requiring an average score of 799 (see graphic below). VantageScore operates on a scale of 500 to 990. Just two years ago the gap between the two was closer — in 2010, it took an average score of 792 to get a credit union credit card and 812 to get a card in the broader market.

More one-on-one help: Sometimes a credit union representative will sit down with the applicant and see what his or her individual goals are, says Luke Pelger, partner relations specialist at GreenPath Debt Solutions.

“We have seen credit unions encourage people to take a personal finance course or attend a money management seminar to increase their knowledge, so if they do get a credit card or use other services, there's the education behind that to help them be a better consumer,” Pelger says.

Cons:

Your accounts are tied together: If you have another account with the credit union, such as a car loan, and you default on the credit card or choose to declare bankruptcy, your car loan then becomes the security for your credit card, and the credit union could repossess your car.

Linking loans is known as “cross collateralization” and depends on individual loan contracts and agreements. Typically, credit unions with these types of agreements enforce them as last resorts, Keefe says.

“As cooperatives, when there's a loss at a credit union, it's a loss to all the members who mutually own the institution; in other words, all the other members pay for it,” he says.

Rewards programs are smaller: Some credit unions offer rewards programs for airline miles, merchandise, gift cards and vacation packages just as banks do. Yet credit unions don't have the massive consumer base banks have, so their rewards programs typically aren't as broad.

Fewer branches: There are fewer branches for credit unions, meaning fewer ATMs. If your credit union belongs to the CO-OP Network, you'll have access to 30,000 fee-free ATMs nationwide. Yet, these take a bit more effort to locate, especially if you're traveling. The network also has ATMs in nine other countries and two U.S. territories. You can find the Co-Op Network ATM closest to you by calling (888) SITE-CO-OP or by using the CO-OP Network's online ATM locator. You can also text your address, ZIP code or cross streets to MYCOOP to find the nearest fee-free ATM.

Not all are insured: Most credit unions, but not all, are insured by the National Credit Union Share Insurance Fund (NCUSIF), which is similar to the Federal Deposit Insurance Corporation. Check to make sure your credit union is covered by the NCUSIF here.

Other considerations
Comparing rates to see how credit cards from credit unions compare to those from banks is a good idea for any credit card shopper, but especially if you're looking to rebuild credit and are looking for friendlier terms, Pelger says.

Keep in mind that you do have to qualify to become a member of a credit union — but that's fairly easy to do, as they are offered for geographic areas, organizations and professions.

If you are considering going the credit union route, be sure to check which services are offered (and at what hours and locations) before you decide whether the lower rates make sense for you, Pelger says.


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