The Benefits of Joining a Credit Union

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Roswell Community Federal Credit Union Sign New Mexico USA.
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By Kimberly Palmer

Customers frustrated with bank fees might want to consider their options, including switching their money over to a credit union. According to the Credit Union National Association, more than 96 million Americans use credit unions, which generally offer higher savings rates and lower fees than traditional banks.

Credit unions, which, unlike banks, are owned and governed by their members, are often misunderstood as exclusive financial institutions with limited services. They remain overshadowed by the size of banks, with banks holding $14.45 trillion in assets versus credit unions' $1.03 trillion, CUNA reports. The average size of a credit union ($149 million in assets) is also far smaller than that of the average bank ($2.2 billion in assets), as of 2012. But credit unions provide an array of services -- including free ATM use, electronic banking, loans and interest-bearing savings accounts -- and most Americans are eligible to join them.

Here are answers to five common questions about credit unions:

Am I eligible to join a credit union?

While membership in a credit union depends on belonging to a particular community, such as a workplace, region or church, most consumers are eligible, even though many don't realize it. They might just need to investigate options within their communities.

So how do you find one? Websites such as mycreditunion.gov can help. Also, ask around -- your employer, spouse's employer or local government can direct you as well.

Do credit unions offer better interest rates?

On average, credit unions offer lower rates on loans and higher rates on savings accounts -- just what consumers want. The National Credit Union Administration reports that five-year loans for new cars at banks have an average interest rate of 5.19 percent, %VIRTUAL-article-sponsoredlinks%compared with 2.87 percent for credit unions. The rate on savings accounts for both credit unions and banks was similarly low, at 0.14 and 0.13, respectively, as of June 2013, although typically credit unions offer higher rates of return. In March 2008, for example, the average rate of return on a regular savings account was 0.83 percent at credit unions, compared to 0.55 percent at banks.

CUNA calculates that taken together, higher yields, lower rates and lower fees add up to about $5.8 billion total in benefits to members, or about $118 per member household in 2012.

Are deposits insured the same way they are at banks?

Yes. Credit unions are insured by the federal National Credit Union Administration, which provides the same protections that the Federal Deposit Insurance Corporation applies to banks -- insurance coverage on deposits up to $250,000. NCUA's website allows credit union members to check on their insurance coverage; the agency also recommends checking for a prominently displayed sign at the credit union that says it is NCUA-insured.

Do credit unions ever collapse?

Like banks, credit unions can fold, but that usually means they merge with another credit union. Regardless of what happens, members are protected through the NCUA insurance. NCUA says if a federally insured credit union fails, members typically receive payments for their deposits within three days.

CUNA also reports that since the start of the downturn in 2008 through 2012, almost fourfold as many banks have failed as credit unions (465 versus 124). In 2012, 51 banks failed compared to 21 credit unions.

What about financial literacy -- can a credit union teach me how to make smart money decisions?

Credit unions pride themselves on being a top source for financial information. Many offer seminars and information on topics such as preventing identity theft and managing credit cards. More information on any of these topics can be found at the NCUA website or by contacting your local credit union.


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The Benefits of Joining a Credit Union
Check your credit reports and correct errors. Of course, you want to make sure that everything is being accurately reported, from your current address to your closed accounts. (For more guidance on how to dispute an error on your credit report, look to this guide from the Federal Trade Commission.)

But you also want to check the details about what is being reported about your current accounts. For example, it can make a big difference to your score if your credit limit for a card is understated. Imagine that you owe $5,000 and your limit is $15,000. That means you owe 33 percent of your limit. If your credit limit is incorrectly listed as $8,000, though, it will look like you've borrowed 63 percent of your limit.
When you fix errors or take actions that should boost your score, make sure that all three of the main credit-reporting agencies (Equifax, Experian and TransUnion) know about it. By law, you can get a free copy of your credit report from each of them once a year -- do so, in order to spot errors and find other score-boosting opportunities.
One gambit few people think of is simply asking for what you want. In order to help you pay down your debt more quickly, you might ask your lender to lower your interest rate. If the lender refuses, see if you can find a lower-rate card and transfer the debt.

If you've got one or two glaring late payments on your credit record, you might ask your lender if they could be erased, in what's called a "goodwill deletion." Lenders are likely to be especially responsive to their best customers. And if you're dealing with a collection agency over some debt, see whether they'll delete it from your record if you pay it off. That can be well worth it.
If you're planning on closing some of your accounts, think twice. It's often a sensible thing to do to simplify your financial life, but closing an account can actually ding your credit score. One reason is that it actually reduces your available credit. Oddly enough, a host of seemingly sensible moves can hurt you -- such as using just one card for most of your charges. Even if you prefer using a newer card, keep older accounts open and use them occasionally to keep them active. Over time, that will give you a longer history and help improve that part of the credit score calculation.
Opening multiple accounts in a short period of time may boost your available credit, but it sends the wrong message to potential creditors, as it makes you look desperate to get credit from any available source.
Here's a valuable tip for anyone selling a home for less than they owe on it: What you're looking at is called a "short sale," and if you end up owing many thousands of dollars to your mortgage lender, you might get it in writing before the sale closes that the debt won't go on your record. Ending up with a big balance owed can be a black mark on your record, reportedly as costly as a foreclosure.

If a high credit score is important to you -- and for most of us it should be -- always consider how your financial actions will affect your score. For more information on credit scores, be sure to look at this guide from myFICO.com, which is the consumer division of the company that is responsible for the popular FICO credit score.
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