Credit Cards: Another Credit Union Benefit

How to switch a credit card the right way

If you think you might be paying too much for your credit card, it's time to look for a better deal. The best place to start is at your credit union. You'll likely find lower fees and interest rates, and a higher level of member service as well.

• Lower rates and fees
• Better member service
• Credit is a tool

Lower rates and fees
The average interest rate on credit union credit cards is three percentage points lower than the rate on cards issued by banks. This difference translates into an annual savings of $240 on the average American household credit card outstanding balance of $8,000, reports CUNA's economics and statistics department.

Credit unions are averaging more than one percentage point less interest for a variable-rate credit card compared with banks, according to Bankrate.com.

Some of the nation's top credit card companies have increased their late payment penalty fees to $35.

While larger issuers sometimes offer super low rates—called teaser rates—those rates usually are for a very short period of time, says Michael McCourt, card services manager of The California Credit Union in Glendale, Calif. Issuers recover their cost by adding additional fees such as a minimum usage fee, regardless of whether you pay off the balance or not. (Look for an article about "teaser hopping" in next month's issue of the Home & Family Finance Resource Center.)

"We're a nonprofit organization so we have no shareholders to pay at the end of the month," says McCourt. "The money we make from our credit card portfolio is either returned back in the form of lower interest rates and no yearly fees, or reinvested back into the credit union to allow it to provide better services to the cardholders."

Another major benefit of having a credit union credit card is lower fees than at most other financial service providers. "We do an annual survey of all of our competitors to double check that we're offering the best possible features, benefits, and rates to our members," says Mary Hanneman, director of marketing at UW Credit Union in Madison, Wis.

The interest rate on credit union credit cards averages three percentage points lower than the rate on cards issued by banks.

Credit unions generally charge at least $6 less on late fees for credit cards than banks. Some of the nation's biggest credit card companies have increased their late payment penalty fees to $35. Bankrate.com reports that Citibank, MBNA America, and Discover will enforce the increased fee on any customers with a balance of $1,000 or more who miss a payment deadline. Fleet Bank charges $35 for any late fee, regardless of the balance. Almost 69% of credit card issuers surveyed will raise interest rates when a customer pays late, compared with 47% in 1998.

You not only could be slapped with a hefty late fee, but your interest rate could shoot way up—another penalty for late payment. Whatever card you carry, it's smart money management to pay on time.

Better member service
Member service from the credit union is another benefit of having a credit union credit card, says McCourt. "If you have a credit card through a large bank or issuer, you're mailing payments to some nameless, faceless center where you don't know who the people are—there is a level of detachment," he says.

"Knowing who you're dealing with means a lot," Hanneman adds. "If you have a problem, you can call 'Julie' in the credit card department at your local credit union, as opposed to having an 800 number where you're never going to know who is helping you; you're one of a hundred thousand credit card customers to this bank. At your credit union you're actually a person."

Credit is a tool

Teaser rates usually are for a very short period of time.

To make a major purchase such as a house or car, you'll have to show that you're a good credit risk and that you can make monthly payments, says David Bauman, a certified credit counselor for Auriton Solutions, a debt management company in Roseville, Minn.

You want to establish your credit by having a credit card and using it prudently and intelligently, while paying it off in a timely manner to show responsibility, Hanneman says. As you use your credit card, get more established, and develop a good payment history, you'll earn more credit. "While having available credit is good, having too much can backfire if you don't manage it wisely. It can be a temptation to overspend," Hanneman adds. Having more cards than you need can sabotage your credit—potential lenders will think you already have access to plenty of credit and could be an unwise risk.

Published May 6, 2002