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Which Is Better for Your Credit: Big Banks or Credit Unions?


Depending on what your needs are, both big banks and credit unions can be good choices.


Today I'll tackle a question that happens to be one of my favorites. Credit unions versus banks: Who's the winner in the credit building game?

Are Credit Unions Good Places to Help Establish/Fix Credit?

Full disclosure: I have accounts with a local credit union and with two national banks. As far as which type is a better choice when establishing or rebuilding credit, they're equal.

A well-managed account with a credit union is just as beneficial as a well-managed account with a bank. There are, however, some things to consider before you make your choice between the two financial institution types.

Which Credit Reporting Agencies Do They Report To?

Credit unions don't always report to all three of the national credit reporting agencies: Equifax (NYSE:EFX), Experian (LON:EXPN), and TransUnion.

If you have an account with a credit union and that account is only being reported to Equifax, then your credit file at Experian and TransUnion won't benefit.

How do you find out if your credit union reports to all three credit bureaus? Ask them!

It's not national security and it should be fairly easy to learn about their credit reporting practices. Almost all large banks report to all three credit bureaus, as standard practice, so check to see if your credit union does, too.

Credit Builder Loans - Credit Unions

Many credit unions offer what's referred to as "credit builder loans." A credit builder loan is a small loan whereby the credit union maintains the money in an interest bearing deposit account while you make monthly payments exhausting the balance.

You may not have access to the money while you're making payments, but once all payments have been made, the balance is all yours. The same issues apply with respect to credit unions reporting to all three credit bureaus, so ask in advance of taking out this type of loan.

Higher Credit Limits - Large Banks

It's easier to get a large credit limit with a large bank or credit card issuer than it is to get one with a credit union. While it's not unheard of, getting a $25,000 credit limit on a credit union issued credit card is atypical. Getting a $25,000 credit limit from a large bank is pretty easy, assuming you've got good credit.

This is important due to the value of having low revolving utilization and how that can help your credit scores.

Revolving utilization is the relationship between your credit card balances and your credit card limits, expressed as a percentage. The higher that percentage the lower your score is likely to be.

If you have a $2,500 credit limit on a credit card it's much easier to inadvertently end up with high utilization. Even a modest $1,000 balance means you're 40% utilized, which is not good.

Now, take that same $1,000 balance charged on a credit card with a $20,000 limit. You're 5% utilized and your scores aren't skipping a beat. Same charges, same balance, considerably different score impact.

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