Credit Cards: Another Credit Union Benefit
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.
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Some of the nation's top credit card companies have increased their late payment penalty fees to $35.
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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.
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The interest rate on credit union credit cards averages three percentage points lower than the rate on cards issued by banks.
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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
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Teaser rates usually are for a very short period of time.
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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.
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How to switch a credit card the right way
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Whether you've decided to switch to a credit union credit card, or just realize that you have too many cards
in that bulging wallet, it's important to cancel a credit card the right way.
"The best time to cancel a credit card is when you have a zero balance on your account," says David Bauman, a
certified credit counselor for Auriton Solutions, a debt management company in Roseville, Minn.
To cancel your card, Mary Hanneman, director of marketing at UW Credit Union in Madison, Wis., says to cut it
in half and send it in to the issuing financial institution with a letter telling it to cancel it and to notify
the credit reporting agency that the account was closed at your request. "If you just cut the card up and stop
using it, the account is still open," Hanneman says. "This leaves your account open to fraud."
If you call the issuer to cancel your card, make note of the day and time you called and whom you spoke to.
You should receive a written confirmation that the account has been closed within a few days. Keep this
confirmation for your records so if anything goes wrong with the account you have proof that you closed it.
After notifying the financial institution about canceling your card, get a copy of your credit report from one
of the three major credit bureaus, says Bauman. They are
Equifax,
Experian, and
TransUnion.
Remember, the credit card issuer (not you) reports an account closing to the credit reporting agencies in one
of two ways, according to Bankrate.com:
1. "Closed at customer's request"—This tells the credit reporting agency that you stopped the
relationship with the financial service provider. That's what you want on your report.
2. "Closed by creditor"—This tells the credit reporting agency that the financial services
provider doesn't want your business anymore. This is what you don't want on your report.
"My recommendation would be to get your report from a different credit bureau each year," Bauman says. "This
way you're consistently checking what's going on with each credit bureau, not just one."
Michael McCourt, card services manager of The California Credit Union, in Glendale, Calif., says most issuers
will ask why you're closing the account and try to keep your business. At that point you can negotiate the
interest rate and fees and see if it's worth keeping the card open. Keep in mind, McCourt says, that the issuer
might try to offer you something special, but whatever you're offered is probably temporary and, within a few
months, you'll be right back where you started.
McCourt says once you know your new card number, contact any reoccurring billing merchants using your card for
payment, such as your cable company, Internet service provider, health club, and utility company. Find out what
time frame there will be for them to start billing your new account.
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Published May 6, 2002
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