Credit Unions: Offering members opportunities to easily and affordably earn positive credit scores

Many are turning to credit unions to take advantage of their credit rebuilding programs and features. Americans are working hard to rebuild their credit scores after enduring financial challenges like the great recession. Many are turning to credit unions to take advantage of their credit rebuilding programs and features. Credit unions are different from banks in several ways. While banks are largely publically owned and designed to generate profit for owners and shareholders, credit unions are not-for-profit and their purpose is to serve their member-owners, as opposed to maximizing profits. Members of credit unions all have a vote in how the credit union will operate to best serve its member’s needs. A currently compelling need is the ability to rebuild credit.

A recent Fox Business article highlights four ways credit unions help raise credit scores[i].

1.  Credit Builder Loans. Members who want to rebuild their credit over time with little cash outlay can take advantage of credit builder loans. These loan amounts can range from a few hundred to a few thousand dollars. When a credit union member applies for a credit builder loan, they agree to make payments on the loan against the full loan amount that is held by the credit union in a secured savings account the member cannot touch. As the member makes monthly loan payments, which are reported to the credit bureaus, the member’s credit score can improve.  Once the loan payments are all made on time and in full,[ii] the loan amount is transferred to the member. Credit builder loans are new types of credit repair options and are growing in popularity as more credit unions adopt the model.

2.  Free Credit Counseling. Unlike most banks, credit unions make credit counseling services available to their members without additional charge. The better educated credit union member should be able to borrow and repay more small loans to increase their credit score and purchasing power. The more successful loans the credit union has, the more it can lend to members who need new homes, vehicles and cash to cover out of budget expenses or investments. Managing member finances may not be widely advertised so it is smart to ask your local credit union relationship manager about their counseling services to help manage cash flow, pay debts and build savings.

3.  Online Tools. Enhancing credit counseling, the credit building tools and features of a credit union’s website can assist a member who doesn’t have time to visit the credit union in person, or who wants to crunch numbers at home. Online financial management and educational programs help members increase their financial health with the education and strategy tools it takes to create and work at the right financial plan that produces the best results. As members benefit from these tools, they can often see their finances improving and are encouraged to maintain better money management habits.

4.  Secured Credit Cards. When credit union members deposit a few hundred dollars into a secured savings account they cannot access, they can get a real credit card, guaranteed by the amount on deposit. If a member’s secured deposit is $300, that will be the credit limit on the card. As the bills come due and are paid, the reporting bureaus are notified and credit scores can be improved. Since there is no real risk of loss, credit unions can more liberally issue secured credit cards, despite a member’s challenged credit history.

To join a credit union, an interested customer must become a member. Unlike many other groups, credit unions allow new members to join at nominal rates. It is relatively inexpensive to become a credit union member. Some people keep their main account at a traditional bank with whom they have a relationship but also hold member accounts at the local credit union to take advantage of member benefits and opportunities to keep building credit and buying power.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can Like the firm’s Facebook page and Follow Joseph Wrobel. Ltd. on Twitter. If you need immediate legal assistance, please call Joseph Wrobel, Ltd. by dialing (312) 781-0996 to talk to an attorney.

[i] Fox Business: 4 Ways Credit Unions Help Raise Credit Scores. By Constance Gustke, Mar. 4, 2014.

[ii] Terms of credit union loans vary by institution and are determined by individual credit union policies.