Credit Unions Are Better For Credit Building Than Banks

I f building your credit is your major goal, then a credit union, rather than a traditional bank is likely your best bet. Because they are non-profit, credit unions are better able to serve the needs of their customers. Banks exist to maximize their shareholders’ profits, which often conflicts with what is best for the customer.

To understand why credit unions are better for building your credit, we must understand how credit unions work.

Credit unions and banks are both institutions that provide financial products for their customers. But while banks are for-profit and have the goal of maximizing shareholder profit, credit unions are non-profit cooperatives owned by their members. This fundamental difference in goals allows credit unions to better serve the local communities that make up their customer base. This is one of several reasons why credit unions are better for building your credit. The not-for-profit cooperative structure means that customers, who are actually the owners, are able to have a voice in operations by voting and even serving in leadership of the organization. Ultimately, credit unions are able to better serve some of the needs of its customers and community.

A credit union is different from a traditional bank in that it’s owned by its members. The only requirement to join a credit union are that you must be a member of the organization. In a credit union, each member has equal voting rights and can influence loan decision-making. The size of the credit union helps members establish relationships with loan decision-makers and local managers. Some banks even make consumer outreach a goal. But a credit-union’s mission is more than meeting the needs of its members.

One important difference between banks and credit unions is how deposits are insured. The FDIC (Federal Deposit Insurance Corporation) insures deposits in banks against bank failure and theft for up to $250,000, per depositor. FDIC insurance has been around since 1933 and was created to prevent the Great Depression era panic and bank runs that occured in the 1920s and 1930s.

Before 1970, and the creation of the NCUA (National Credit Union Administration) by Congress, there were no such protections available for credit union deposits. Now the NCUA insurance guarantees up to $250,000 per share owner, per insured credit union.

Why credit unions are better for building your credit

So what exactly are credit unions able to do better?

Better and more personalized customer service.

Credit unions are known for providing exceptional customer service since they are smaller and committed to serving their members, not their investors. Credit union representatives will likely give you personalized attention and help you identify the best services for your needs.  This is something that is not commonly found at  large banks.

Lower Or No Fees and better interest rates on loans and savings accounts 

A credit union can help you save, as well as make money, with free ATMs, lower fees, and better returns on savings accounts. Credit unions provide higher interest rates on savings and deposit accounts than commercial banks do.  The Digital Credit Union in Massachusetts, for example, offers a 6.7% annual yield on the first $1,000 in a primary savings account. These things combined are why  credit unions are better for building your credit.

Community Services

A credit union’s community involvement is an important aspect of the credit union. Its employees are member-owners, and their money is not available to non-members. In addition to providing their services, a credit union also supports local causes. They may award scholarships to students, host fundraisers, or hold a variety of other programs. They are generally positive forces that exist to serve the community in which they operate.

Unlike a bank, a credit union offers a variety of services. It educates its members about money and credit. Some even offer women’s defense classes

More Flexible Decision Making

A credit union is owned by its members, and this gives the members a say in decisions made by the bank. This means that it can be more flexible in the loan approval process, and you can easily negotiate a better deal. The only drawback is that you may not be eligible for every type of loan. A credit union is a great option if you have good credit and low income.

Credit Unions Offer Products Designed Specifically For Credit Building

Credit Builder Loans

So what specific things does a credit union offer to help build your credit? The most common product they offer to help build credit is credit builder loans. These loans are designed to help those with poor or no-credit build their credit responsibly. The way it works is that you apply for the loan when you need to establish your credit history or improve your credit rating. The borrowed funds are held until you complete repayment of the loan. Then, the full loan amount plus all dividends are then transferred to you.

Credit Cards

Credit unions also offer credit cards specifically designed to build your credit score. By making on-time credit card payments, which are reported by the card issuer to the credit bureaus, your credit score improves. This is true because timely payment history comprises 35% of you overall credit score. 

There Are Some Cons

Despite the many advantages of credit unions, there are some cons. The number of local branches tends to be much lower for a credit union. There may not be a branch office in your neighborhood. A smaller credit union may only have an ATM, and not a full office, in your area. Also, membership in a credit union is limited to those who meet certain criteria. If you’re looking for a wider range of financial products and services or more advanced technology a bank may be  better. The bottom line is that you are the one best qualified to decide if a credit union suits your needs.