Credit cards from both credit unions and banks allow you to make purchases in stores and online. But these two financial institutions differ in several key ways. In fact, before you apply for a new credit card, you should carefully compare the options offered by the credit unions and banks near you.
While doing so, make sure you understand the benefits and drawbacks of each option so you choose the card that will support your financial goals now–and into the future. Here are some of the differences you can expect to see:
Before you get a credit card from a credit union you need to join the credit union, or become a member. Credit union services are exclusive and reserved for members. In the past, that meant you had to live in a certain area or belong to a specific profession or civic group. Today, the membership requirements are more lenient.
Alternatively, almost anyone can sign up for an account and apply for a credit card through a local or online bank. Another major difference between the two is that your membership with credit unions enters you into a “joint-ownership” with the other members, typically providing lower interest rates, higher dividends, and other perks.
Whether you choose a credit union or a bank, you’ll need to complete an application to get a credit card. The approval process includes an evaluation of your credit score and credit reports as well as current income details. Financial institutions use these details to determine the likelihood that you’ll repay the money you charge or borrow with your credit card.
Despite popular belief, you may be able to qualify for a credit card even if you have less-than-perfect credit. We recommend calling or visiting your local credit union or bank to learn about the best options for you.
You can also apply for a secured credit card offered by many credit unions and some banks. With this type of credit card, you pay a security deposit and may only charge up to that amount. Use a secured credit card to build your credit and earn better credit card terms in the future.
Overall, it’s difficult to compare approval odds for credit unions versus banks since there are many factors involved and many different types of banks and credit unions. But, credit unions are known for taking the time to understand your financial goals and helping you meet them.
Annual Percentage Rate (APR) & Interest Rates
First, it’s important to clearly understand the difference between APRs and interest rates:
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited or borrowed.
An annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR(EAPR), is the interest rate for a whole year (annualized), rather than just a monthly fee/rate.
While federal laws cap APRs, the interest rate on credit cards can vary based on the issuing financial institution and credit card perks. According to the NCUA, you’ll pay an average APR of 11.71% APR on credit union credit cards versus 13.13% on bank credit cards.
The APR is an important detail to consider as you choose a credit card. Even if you don’t plan to carry a balance each month, be aware of the APR in case you do miss a payment or decide to charge a big-ticket item in the future.
Differences In Credit Limits
The amount of money you can charge on your credit card is known as your credit limit. You’re more likely to qualify for a high credit limit when you apply for a bank credit card. Large banks will normally offer to cover more charges than the average credit union.
Your current credit utilization is another major factor that affects your credit limit. If you have balances on other credit cards, loans or charge accounts, you may not qualify for a high credit limit on a new credit card.
Important: Bigger isn’t always better. In other words, a bigger credit card limit isn’t necessarily best for everyone. You should carefully calculate how much credit you think you’ll need each month and review your current credit utilization rate. These figures will help you understand how much you’ll need for your goals and lead you toward the right credit card options.
Fees for Credit Unions versus Banks
Every credit card provider charges fees. Nonprofit credit unions can typically charge fewer fees than for-profit banks, though. In most cases, that means you will save money over time when you choose a credit union credit card.
As you compare both types of credit cards, review details about typical credit card fees, such as:
- Annual fees charged for the privilege of owning the card
- Late fees that occur when you miss the payment deadline
- Balance transfer fees associated with transfers from one credit card to another
- Foreign transaction fees if you use your card while traveling outside of the United States
Credit Card Features and Rewards
Features and rewards add value to your credit card. Examples include a sign-on bonus and cash back. Credit unions may not offer huge features or rewards because they’re smaller and have fewer resources than a bank. Take time to compare features and rewards, especially if these perks are important to you.
Defaulting on your credit card could cause harmful financial repercussions. This fact is especially true with a credit union credit card. Credit unions practice cross-collateralization. The collateral from one loan or account can be used to cover your credit card debt.
For example, if you miss credit card payments but have an auto loan with the same credit union, the credit union can take your car. Additionally, the credit union could withdraw the payments you owe from your checking or savings account.
When you have a question about your credit card terms, charges or payments, you need access to your credit union or bank’s customer service center. Consider the size and availability of customer service as you choose a credit card lender.
Large banks serve millions of customers. To do so, most banks implement a variety of customer service tools, including call centers, complex websites, online chat and more. All of these options are great but wait times can still be long and the process can be complicated.
Credit unions, on the other hand, typically serve fewer members and are well-known for offering great customer service. While credit unions may not use all the technology that large banks do, members can depend on great response times, and attentive communication.
During hardships or emergencies, you want to know that your financial institution is on your side and you’ll be treated as an individual, not a number. Credit unions specialize in providing individualized service.
Will You Get Your Card from a Credit Union or Bank?
At the end of the day, your best options will depend on your specific credit profile and your financial goals. Before you sign up for a credit card, carefully review your options. Both credit unions and banks offer credit cards, including VISA cards, but each lender also features benefits and drawbacks. Here are some additional resources while you research the right option for you: