You're ready for a credit card but is it best to go to a credit union or a traditional bank?
Money & Finances: Banking
Money & Finances: Credit Cards
Many people are fortunate to have a great credit union that they've used for all their banking needs for years. Others are drawn in by the rewards offered by major banks. Whether you fall into one of these categories or are undecided, there are several things you need to consider before deciding whether to apply for your next credit card at a bank or credit union.
For most banks, credit card applications are a simple online form that can be completed in about five minutes, and many decisions are given instantly. This is the same for a number of credit unions, but many still require a paper application to be mailed or faxed, and some even require an in-branch application. Credit unions can also take several weeks to give an approval. This may usually be a small consideration, but if you need a credit card before you leave for a trip or would have to take time off from work to apply at a credit union, a bank may be the way to go.
Most credit card decisions are made solely based on the information you supply in your application. However, if proof of income is required, banks will generally be stricter in requiring specific documentation while credit unions will generally be satisfied that you're regularly making deposits with them.
In terms of credit scores, approvals will vary widely as different cards are marketed towards different target credit score ranges. As a general rule, though, credit unions are more lenient than banks when dealing with customers who have a long-term relationship with the credit union.
Credit unions tend to give much higher starting credit limits than banks do. When a credit line increase is needed, banks are generally easier to deal with. Several major banks regularly review accounts and automatically grant credit line increases for accounts in good standing. Still others will process a credit line increase request with a soft credit pull that has no effect on your credit score. Most credit unions will only process a credit line increase with a hard credit pull that will slightly decrease your credit score.
Credit union interest rates are typically far lower than bank interest rates. For credit unions, single digit rates are common, and it is rare to see rates above 15%. Bank interest rates typically start around 12% for prime customers and can be higher than 20% for other customers.
For rewards programs, banks usually win. Cash back, travel miles, and other rewards are funded largely from interest collected. This gives banks a lot more to offer, and bank cards can have up to 5% cash back in certain categories or big bonuses on travel miles for travel purchases. Credit union rewards programs are usually limited to simple 1% cashback on everything cards or less generous points or miles programs.
Banks also use their size to negotiate additional benefits for their customers. Many have negotiated deals with travel partners for things like free hotel nights, priority boarding on flights, or access to special airport lounges. Other perks include attraction admission discounts, special online stores with additional savings, extended warranties, and price protection on purchases.
By federal law, credit card holders can only be held liable for up to $50 if fraudulent transactions are made on their account. Most banks and credit unions extend this to zero liability. However, the process for establishing whether a transaction is fraudulent can be much more complicated with credit unions. For banks, filling out an online form, making a phone call, or mailing a letter is generally enough. Many credit unions request notarized affidavits or police reports before processing a dispute. In addition, credit unions operating on tighter margins may be less likely to resolve a dispute in favor of a customer if it means they will take a financial hit on the transaction.
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