Are Credit Union Credit Cards Different?

Womann holding a credit card
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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 bank credit card issuers.

Upsides of Credit Union Credit Cards

A credit union credit card is issued by a credit union rather than a bank. Credit unions are nonprofit organizations that allow members to borrow from pooled deposits at low interest rates. Major credit card issuers, on the other hand, are for-profit banks that must always keep their stockholders in mind when making decisions.

Lower Interest Rates

Credit union credit cards often have lower interest rates, lower fees, and can be more consumer friendly than credit cards from major credit card issuers. Interest rates on federally chartered credit union credit cards, for example, are currently capped at 18%, which is lower than the current average credit card rate of 20.25%.

There is no federal limit on the interest rate for big bank credit cards. Instead, interest rates are capped by state law in the state the issuer is located, and based on the market and competition. 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.

The Servicemembers Civil Relief Act limits the interest rate to 6% for active duty service members for credit card balances that were incurred prior to active duty.

Better Customer Service

Being a member of a credit union may make it easier to get approval, even if your credit isn't in the best shape. Credit unions can be more lenient with members and may be more willing to give you an opportunity to build—or rebuild—your credit.

Downsides of Credit Union Credit Cards

You Have to Be a Member

You have to be a member of the credit union to apply for one of its credit cards. If you have your eye on a particular card issued by a credit union you are not a member of, all is not lost. Many credit unions offer multiple ways to qualify for membership, including family membership ties, professional ties, and membership in nonprofit organizations. For example, you can join the Consumers Credit Union and apply for the CCU Visa Signature Rewards Card by paying a $5 fee to the Consumers Cooperative Association.

Check the criteria to join a credit union to see if there's a way you can qualify.

Potential Risk to Other Accounts

Many credit unions include clauses in their credit card terms that allow the credit union to access funds in your credit union checking or savings accounts were you to default on your credit card. This is called a “security interest,” and it’s a lot like collateral on a loan or a deposit on a secured credit card. Credit cards with this feature must include prominent disclosures in their terms, as required by law. Review the card agreement before you apply and decide whether you are comfortable with this arrangement.

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.

What to Look for in a Credit Union Credit Card

Once you're a member of a credit union, you'll have a selection of credit cards to choose from. Sometimes, it goes the other way around—you may seek membership in a credit union so you can apply for a credit card you've had your eye on. The card you ultimately choose depends on your current needs, but generally, you should look for a card with no annual fee and a low interest rate.

If you'd like to earn more rewards, select a card that fits your spending habits. For long commutes or a lot of time on the road, the PenFed Platinum Rewards Visa Signature card pays 5 points per $1 spent on gas and 3 points per $1 spent on groceries. You’ll need to become a PenFed member, but everyone is eligible to join (you will need to open a share account with a $5 deposit).

For transferring a balance, the PenFed Gold Visa card offers 0% APR on balance transfers for 12 months on balances transferred by September 30, 2021. PenFed Credit Union has open eligibility for service members and civilians.

To rebuild your credit, the Savings Secured Visa Platinum Card from the State Department Federal Credit Union allows you to secure your credit limit with the money in your savings account. You can earn rewards and enjoy a considerably low APR on purchases. To join, you must be an employee or a relative of an employee of the U.S. Department of State or employed by or affiliated with a member organization, or may join the American Consumer Council to become a member.