By Dan Miller ·February 01, 2023 · 7 minute read
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While joining a credit union likely won’t affect your credit score in and of itself, some of the financial products offered by credit unions can have an impact on your score. For example, a credit union may offer lower interest rates on loans, which can help you keep an affordable monthly payment that’s easier to make on time. You also may be more likely to get approved for a credit union credit card than one from a bank, and responsibly using that card could help you build your credit score.
If you’re considering a credit union membership in the hopes that a credit union can help build credit, it helps to first understand how you can accomplish this. That way, you can better determine if joining a credit union is worthwhile for you.
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What Is a Credit Union?
A credit union is a non-profit financial organization that exists to serve its members, who are also its owners. This can mean that credit unions are able to offer higher interest rates on savings and lower interest rates on loans and credit cards, as well as charge fewer fees.
Credit unions can offer many of the same financial services and products as banks and online lenders, though their lineup and number of locations can be a bit more limited. To gain access to a credit union’s products, you’ll need to become a member, which entails meeting certain requirements. Credit unions often target certain communities or regions.
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Credit Unions vs Banks vs Online Lenders
Here’s a brief look at how credit unions compare with both banks and online lenders:
| Credit Unions | Banks | Online Lenders |
|---|---|---|
| Not-for-profit | Usually for-profit | Usually for-profit |
| Typically offer lower interest rates on loans than banks or online lenders | Typically charge higher interest rates on loans than credit unions | Typically charge higher interest rates on loans than credit unions |
| May offer an array of basic financial products | Often offers a full spectrum of financial products and services | May offer an array of basic financial products |
What Is a Credit Union Credit Card?
Many credit unions partner with credit card issuers to issue a co-branded credit card. The types of credit cards that are offered by credit unions vary widely depending on the particular credit union. They can include rewards credit cards that offer points or cash back or secured cards designed for those looking to build their credit.
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What Credit Score Is Typically Needed for a Credit Union Credit Card?
Each credit union is owned by its respective members, so there isn’t a set credit score that’s needed for a credit union credit card. Rather, each credit union sets its own parameters for the credit score and other financial requirements for approval.
That being said, you may have better luck getting approved at a credit union compared to a traditional bank, even if you are still building your credit.
How a Credit Union Credit Card Can Help Build Your Credit Score?
Here are some of the ways a credit union credit card could help you to build your credit score.
Potentially Easier Approval
Getting approved for and opening a credit card or loan is key to establishing credit. However, it can be challenging to get credit if you’ve never had it before. Because credit unions are owned by their members, you may find it easier to get approved for a new credit card. And if you are denied, it may be easier to talk with a customer service representative.
Lower Interest Rates
While this isn’t necessarily true across the board, many credit unions offer lower interest rates on debt products like loans and credit cards. Having a lower interest rate can help you build your credit score by making it easier to stay on top of paying down debt.
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Fewer Fees
Along with lower interest rates, it ‘s common for credit unions to charge fewer fees than traditional banks or other lenders. Since credit unions are not-for-profit, they don’t need to charge some of the fees that banks and other financial institutions do. Paying fewer fees can help you keep more of your money in your pocket to pay down debt and save for the future.
Automatic Payments Option
Many credit unions allow you to set up automatic payments on your credit union credit card account. Additionally, most credit unions offer different checking and savings account options, so you can easily pay your credit card from your checking account. This setup helps avoid missing payments, which can help to build your credit score, given one of the best tips for building credit is to pay your debt obligations in full and on time, each and every month.
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Are Credit Unions Safe?
Just like money in banks is insured by the Federal Deposit Insurance Corporation (FDIC), the funds you keep in credit union accounts are insured by the National Credit Union Administration (NCUA). The NCUA is an organization of the federal government that insures up to $250,000 per account that you have at a federally insured credit union.
Still, you’ll also want to take simple steps to keep your credit union account safe online, such as verifying transactions and choosing strong passwords.
Is It Worth it to Join a Credit Union?
Joining a credit union can be a wise financial move, especially if you find one that is a good fit for you and that offers the products and services you need. Many people enjoy being a partial owner of a credit union rather than just being one more customer at a for-profit bank, as credit unions tend to be more community-oriented. And the good news is that switching banks is usually not that difficult.
Alternative Ways to Build Your Credit Score
Joining a credit union won’t help build your credit score on its own, but it can be a good first step toward building your credit. Here are a few other ways that you can build your credit score:
• Use a credit card cosigner to increase your approval odds.
• Apply for a secured credit card, which requires making a deposit.
• Get a traditional credit card, like the SoFi credit card.
• Review your credit report regularly for any inaccurate information.
• When you buy your next vehicle, use an auto loan and then responsibly make payments.
• Take out and responsibly use a personal loan.
• Become an authorized user on the account of someone with strong credit.
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The Takeaway
Credit unions are nonprofit financial institutions that offer many of the same financial products as banks and other online lenders. But unlike banks, credit unions are owned by their members, which can help keep interest rates high and fees low. Joining a credit union won’t help you build your credit by itself, but taking advantage of credit union perks and financial products may help you build your credit.
Another way to build credit can be by applying for a credit card like the SoFi credit card. If you’re approved for a cash-back rewards credit card with SoFi, you can earn unlimited cash-back rewards. You can use those rewards as a statement credit, invest them in fractional shares, or put them toward other financial goals you might have, like paying down eligible SoFi debt.
The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1
FAQ
Will joining a credit union improve my credit score?
Joining a credit union in and of itself will not improve your credit score, since the fact that you are a member of a credit union does not usually appear on your credit report. However, credit unions offer many financial products, including loans and credit cards. Making responsible use of some of these credit union offerings can help you build your credit.
What are the disadvantages of joining a credit union?
Because credit unions are owned by their members, you generally can’t simply open up an account. Instead, you may have to belong to a specific group or pay a small membership fee to get an account. Many credit unions are also smaller than most banks, so they may not offer all of the financial products you’d find at a larger bank.
Will credit union credit card payments show up on my credit report?
Most credit card payments — including credit union credit card payments — are reported to the major credit bureaus. Paying your statement balance on time and keeping your balance low can be great ways to help build your credit.
Photo credit: iStock/sshepard
1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
1See Rewards Details at SoFi.com/card/rewards.
Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circ*mstances.
The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
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