Credit unions offer good -- and friendly -- credit card deals
Second in a five-part series: Credit UnionsBy Lucy Lazarony • Bankrate.com

People looking for a low-rate, no hassle, easy-on-the-fees credit card may want to stop by their local credit union.

The reasons are many -- some cold and hard as numbers, others as warm as relationships and communities.

Consider:

• The average interest rate for a fixed-rate standard card from the 50 largest credit unions is a competitive 13.15 percent, according to the latest Bankrate.com survey. The national average for a fixed-rate standard card is 13.83 percent. (You can search the latest Bankrate.com survey for the best deal.)
• A credit union accepts payments without penalties anywhere from five to 15 days after the due date. National issuers tend to slam members with a charge if a payment arrives just one day late -- and higher penalty rates, too.
• Late fees -- when levied -- are modest, typically $10. The big issuers are charging $29 these days.
• And some credit unions even boast community-oriented cards. A credit union in Washington state, for example, offers a card program that donates 1 percent of credit card purchases toward tree planting and park building in a small city outside Seattle.

"Credit unions tend to have better rates and more consumer-friendly terms because they're not in it for the profits," said Linda Sherry, editorial director of Consumer Action, a consumer-advocacy organization based in San Francisco, Calif.

Gerri Detweiler, co-author of the personal finance advice book Invest in Yourself, adds: "There's a relationship, so they're going to treat you differently than if you're with a large issuer and you're one of millions."

One in three Americans belongs
It sounds good, but how hard it is to land a card? Well, there is the little issue of membership. To sign up for a card, you must be a member of a credit union or a relative of a member.

One third of American adults belong to a credit union, and 88 percent of credit union members belong to a credit union that offers credit cards, according to the Credit Union National Association, the large trade association for credit unions based in Washington and Madison, Wis.

Credit histories vary, so not everyone who applies is going to get a card. However, credit unions are known for their willingness to work with members who have little or damaged credit. Credit Union of the Pacific, for example, offers a starter card with a $300 limit.

"We're like everyone else. We're going to look at the credit," says Laurie Stewart, president of the Seattle-based credit union, adding, "I think we'll stretch to work with people who are young or someone who has had significant credit challenges."

They'll stretch most often to help the son or daughter of a long-time credit union member. "We do that all the time," Stewart says.

Relationships are big at credit unions. They reward people with multiple accounts with discounts on rates and fees.

"We constantly try to develop relationships," Stewart explains. "In fact, we discourage people from just being credit card customers because we've found if you're just a credit card customer we don't know much about you and you'll probably leave."

Credit unions also are more willing to work with people who are struggling to make ends meet. Iowa Community Credit Union urges members who are having trouble paying their card bills to call the credit union before they fall behind on payments. As long as the member agrees to close the credit card account, the credit union will knock the minimum monthly payment down to $10 a month.

Once paid off, the member is free to reapply for another card. Nothing derogatory will be placed on the member's credit report if the member contacts the credit union before missing a payment.

Bill-paying's just around the corner
Another advantage a credit-union credit card has over a card from a national issuer is the ease of paying bills. Instead of mailing a check to a faraway issuer, members can simply drop by the local branch around the corner.

"They can pay their credit card bill at any branch location and it goes on the account that day if they bring it in before 3," says Shalee Stewart, marketing assistant at Iowa Community.

And the branch still is the place to apply for a card. Credit unions seldom use direct mail. While some credit unions have online card applications, cards are still heavily advertised at branch offices. Bill Hampel, chief economist at the Credit Union National Association, says credit unions make cards available to members "the old-fashioned way."

"Quite a bit is done to promote the availability of the service, (but) the potential customer of the service has to come and ask for it," Hampel says.

And while credit-card national issuers have embraced risk-based pricing, customizing credit card offers based on a person's credit profile, credit unions still are more likely to offer all card members the same interest rate. But experts say that's started to change in the past few years.

"Credit unions understand that members with good credit are not as great a risk and deserve a lower rate," says Julia Kennemur Nicol, vice president and product development manager for TNB Card Services.

Few bells or whistles
Some of the credit union cards are on the plain side. The desire for lower rates also keeps many credit unions from offering frequent flyer miles or cash rebates with their cards, like the big issuers do.

Even when credit unions have someone else process their credit card portfolios, as most do, they remain in charge of rates and fees.

"The credit union owns that loan on their account books," explains Merry Pateuk, director of corporate relations for Payment Systems for Credit Unions in St. Petersburg, Fla. "And because they own the loan they can charge whatever rate and fee they want to."

Of course, all that changes if a credit union opts to sell its portfolio to another issuer. The new issuer calls the shots when it comes to rates and fees, and old promises and policies need not be honored. While credit unions have largely stayed out of the portfolio-swapping that has been sweeping across the credit card industry, it does happen. Like any cardholder, credit union members should protect themselves by reading all the information that comes in their bills. If a new issuer takes over their accounts, they can accept the new terms and continue to use the cards or take their business elsewhere.

Because credit unions aren't driven by profits, experts say they are more likely to hang on to a credit card business that is breaking even than a bank would. Without shareholders to please, credit unions also have the freedom to try more innovative, smaller-scale products -- simply because members want them.

Get a card, plant a tree
A couple years back, a community group in Sequim, Wash., approached the Credit Union of the Pacific about issuing a card that would help the small city outside Seattle raise money for parks, tree-plantings and road improvements.

And so the Credit Union of the Pacific started issuing a card that boasts a postcard-pretty view of Sequim and pays back 1 percent of each purchase made with the card to the small community.

The card features a view of Sequim complete with mountains and pastures filled with grazing cows. So far the card program has raised $40,000 for the city.

"It's not a huge program but in that community it's incredibly successful," Stewart says. "We think it's a fine way to give back to the community."

Coming April 12

Mergermania has hit the credit-card industry -- and the results aren't always good for consumers. When a portfolio of customers is sold, the new company can change the rules and rates, keep the card-holds it wants and cut the rest adrift, whether they've been good customers or not.

-- Posted: April 6, 1999