- The interest rates available on credit cards issued by both banks and credit unions are directly affected by the amount it costs banks and credit unions to borrow money. Financial institutions fund credit cards and other loans with money borrowed from the government, as well as funds held in deposit accounts. However, credit unions only need to raise enough money to covering operating costs, while banks need to cover costs and generate profits. Consequently, interest rates on credit cards from credit unions are usually lower than on cards offered by banks.
- Credit unions are tied to certain communities or employers and as a result, credit unions have smaller deposit bases and can afford to lend less than large banks. Therefore, credit unions typically only issue credit cards to people with high credit scores. Banks, with more funds on hand, can afford to set more money aside for credit-card lending and have less stringent underwriting standards for credit cards. People whose scores are too low to qualify for credit cards at credit unions can often qualify for cards from banks.
- You can qualify for a credit card issued by a bank as long as you have a good credit score and enough monthly income to cover the monthly card payments. Credit unions also check your income and your credit, but even people with good credit and high income are turned away by credit unions because they do not meet credit union membership eligibility guidelines. If you do not qualify to join a credit union, you have no choice but to obtain a card from a bank.
- Many card issuers pay rewards to card holders for using their cards to make purchases and typically these reward programs are more lucrative at banks than at credit unions. However, credit unions tend not to charge annual fees and charge much lower balance transfer fees than banks. Therefore, credit union credit cards overall usually cost less in terms of fees and interest, but bank credit cards are much easier to qualify for.
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