Are Credit Union Credit Cards Better?

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 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.

5 Best Credit Union Credit Cards

Here are some of the best credit union credit cards on the market right now and a brief description of what’s required to join that credit union. 

Best Signup Bonus: Aspire Federal Credit Union Platinum Rewards MasterCard

The Aspire Federal Credit Union Platinum Rewards MasterCard offers a signup bonus of 5,000 CURewards points after you spend $2,000 in the first three months of having your credit card. Balance transfers, which get a 0 percent APR for 6 months, count towards the spending requirement for earning the signup bonus.

Ongoing, you’ll earn 1 point for every dollar you spend on your card. Rewards can be redeemed for merchandise and travel discounts.

You can join the Aspire Federal Credit Union if you have an eligible family member or employer. Otherwise, you can join the American Consumer Council to become a member.

Best Cashback: USAA Cash Back Rewards Plus American Express

The USAA Cashback Rewards Plus American Express pays 5 percent cashback on the first $3,000 in gas and military base purchases each year; 2 percent on the first $3,000 in supermarket purchases per year; and unlimited 1 percent cashback on everything else. You’ll earn 1 percent on gas and grocery purchases over the annual limit. As a cardholder, you’ll have access to other American Express perks like extended warranty, collision damage waiver coverage, and zero fraud liability.

You’re eligible to join USAA if you or your spouse is active or retired military or your parents or spouse is a USAA member.

Best for Gas and Grocers: PenFed Platinum Rewards Visa Signature Card

The PenFed Platinum Rewards Visa Signature Card pays a $100 statement credit if you spend $1,500 in the first 90 days of having your credit card. Ongoing, you’ll earn 5 points for every dollar you spend on gas purchases; 3 points per dollar on groceries; and 1 point per dollar on all other purchases. You’ll also enjoy a 0 percent introductory APR on balance transfers for the first 12 months.

You can join PenFed credit union if you’re an active or retired U.S. Military and Uniformed Service member, or a relative or housemate of one.

Best for Big Spenders: Alliant Visa Signature Card

The Alliant Visa Signature Card is designed for those who spend $50,000 or more on their credit card. There’s no signup bonus, but you’ll earn 3 percent cash back on your purchases in the first year and 2.5 percent cashback each year after that. Let’s say you spend $50,000 in the first year (that’s about $4,170 per month), you’ll earn $1,500 in cash back rewards in the first year and $1,250 in the second year. There’s no limit to the cash back rewards you can earn. There is a $59 annual fee that’s waived in the first year.

To join, you must be a current or retired employee of a business or organization partnered with Alliant. Otherwise, you can make a donation to Foster Care to Success then become a member of Alliant.

Not all credit cards are created equally, even credit union credit cards. As with any other credit card, you should research and compare before applying.

Best for Bad Credit: State Department Federal Credit Union Savings Secured Visa Platinum Card

If you’re looking for an easily accessible secured credit card to rebuild your credit, the Savings Secured Visa Platinum Card from the State Department Federal Credit Union is a good option. Your credit limit is secured by funds in your savings account. There’s no annual fee and you’ll earn rewards on your purchases.

To join, you must be 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.