Do you love your bank? These days, it’s not hard to find personal stories and news reports that speak of Americans’ discontent with the banking industry. Many people are looking for alternatives, including credit unions.
Credit unions have been around since the 1930s, yet you may be unsure what a credit union is or how it differs from a bank. Both have account holders and both lend money for things like home mortgages and car loans, but there are some important differences.
First, a credit union is a not-for-profit financial organization. Instead of being a publically traded company, like a bank, a credit union is “owned” by its members, who are considered equal shareholders. The members pool their money into a “union” and then use those funds to make loans only to members of the union.
Because operating profits are returned to the members as benefits, credit unions generally offer lower interest rates on loans, higher interest on savings and lower fees. Most credit unions now offer services comparable to what banks offer, including checking and savings accounts, online services and multiple branches.
The caveat is that you’ll have to qualify to join one. Unlike banks, who will allow pretty much anyone with a Social Security number and some cash to open an account, credit unions require certain qualifications before allowing you to become a member. In order to join a credit union, you’ll need to find one with a “field of membership” that applies to you.
For example, two of the largest credit unions – Navy Federal Credit Union and the State Employees Credit Union – limit membership to members of the military, and North Carolina state government employees and a handful of other groups, respectively.
The good news is, if you’re really interested in joining a credit union, there are a lot out there and chances are you can find one you qualify for. Check out www.ncua.gov, the website of the National Credit Union Administration, to find a credit union.
More good news: Moving your accounts to a credit union won’t affect your credit, as the scoring models used by credit bureaus will view your interactions with your credit union the same way as interactions with a bank. That means your good payment history on a credit union loan will count in your favor, just as it would with a bank loan.