Is Credit Union A Good Alternative To The Banks

By Sean A. Kelly

Credit Union is very similar to banks, but credit unions have some unique characteristics that make the institution different. Is a credit union better than a bank? A credit union is an institution owned by the ‘members’ or customers. Contrast this with banks where the customers are just customers. Banks answer to profitability – usually shareholders own a bank and expect financial performance from bank management. Credit unions are nonprofit organizations that strive for service over profitability. While it is true that credit unions are nonprofits, however they are not charities. Credit unions must make sound financial decisions. If all the customers own the credit union, then who has time to run the place? Credit unions actually have the same type of personnels as banks. Upper management consists of a board of directors who make decisions on credit union operations. This board is composed of elected volunteers. They don’t do it for pay – rather, they are credit union members who want a say in how the place is run. In its simplest form, a credit union gets money from its customers and loans that money out to other customers. Credit unions will typically offer the same products and services as larger banks. However, some credit unions will choose not to offer every product and service out there. The reason is that these credit unions do not do the same amount of volume that larger banks do. Banks can afford to have ‘loss-leaders’ or products that get customers in the door. Credit unions will more likely only offer the products and services that a large portion of the membership is likely to use. Credit union deposits are insured very much like your bank deposits. The organization that insures the two types of institutions is different. However, the quality of insurance is the same in my mind – backed by the full faith and credit of the US government.

Credit union loans have been around for years, but people still wonder exactly how they work, and if they can get the same feature and benefits of a big bank. This summer, some folks are wondering if they can afford to enjoy it as they have in the past. Ever since the recession, banks have been losing the respect of the public. Their reputation has been tarnished, and many are wondering where they can take their money for reliable, friendly and cost-effective service. At a credit union, you are the shareholder when you become a member. You’ll be asked to keep anywhere from $5-$25 in a share-savings. This is your share and you are now part owner. But since credit unions are inherently non-profit, all those funds that are normally generated must be funneled back to you. There are fewer and smaller fees, and often much more leniency in refunding them. More money for training new employees and keeping talented financial advisers on staff results in more knowledgeable service. You can get higher returns on your deposits, and you can get some of the best rates on the market for loans.


Many people mistakenly think when a credit union loan has been charged-off that it’s been cancelled by the creditor. This is not true. You are still responsible for paying off the debt. For e.g. in cases of credit cards when the charge-off has been done by the creditor, you will not be able to use your credit card to make purchases. Companies, including creditors and lenders, have profits and losses every year. They make money from profits and lose money from losses. When a creditor charges-off your account, it’s declaring your debt as a loss for the company. Even though the creditor has acknowledged your debt as a loss in its financial records, you don’t get away free. Your creditor will add a negative entry (a charge-off) to your credit report and continue to attempt to collect on the debt. An account is usually charged off after 180 days, or six months, of less-than-minimum payments. The charge-off will remain on your credit report for seven years from the date it was charged-off. If you pay the debt, it will be updated with a status of “Charged-Off Paid” or “Charged-Off Settled.” Either is better than a simple “charge-off” status, but is still undesirable. The only way to remove a charge-off from your credit report is to wait the seven-year period or negotiate with the creditor to have it removed after you pay the account in full. The creditor can charge off a delinquent loan, regardless of what may be surmised from the debtor’s intent.

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