Credit Union or Bank? Which Finance Choice Will Better Your Credit Score

Rather than be a little suspenseful, I’m gonna cut straight to the point. In terms of which financial institution to choose from to better your credit score is BOTH. Let me first explain by defining the difference between a bank and a credit union.

A bank is a for-profit entity that offer financial tools and services “for free” (I’m sure a fee is sneakily included in the maintenance charges the bank hits you with but I digress).  They are a public company owned by shareholders who purchase company stock in return for monetary benefit. A plus to signing up with a commercial bank provides you a wider range of financial products and services than a credit union. They are also easily accessible (longer hours to speak to customer service) and conveniently located in most areas.

Credit unions can also provide financial tools and services but not as readily or near savvy as a commercial bank. They are owned by the members and are a not-for-profit cooperative. As an incentive though, they offer better percentage rates for loans - e.g. mortgage, car, school, personal, etc. When requesting money for any of the previously mentioned expenses, a credit union will provide you with a lower interest rate (meaning the amount you’d have to pay back is less than what you’d owe elsewhere, including a commercial bank). Some will even provide a higher interest rate on deposits - cah-ching! Oh how I miss the old days with ING Direct.

So how will these two options help your credit score? Well the whole gist of building credit is borrowing money responsibly while avoiding late payments. Using a source to pool money from to repay your lenders takes you one step closer to building a very good credit history. My personal recommendation is to use one account for strictly paying your bills and the other for personal frivolous expenses. For example, I’ll use a credit union to auto withdraw money from my checking account to pay my credit card (my credit card pays for car insurance, phone, student loan…). Note: using my checking account to auto pay my credit card is like hitting two birds with one stone. I’m building an attractive credit history while at the same time showing both companies that I’m faithfully making a payment every month. This will come in handy if I ever want to extend my credit line or borrow money for a house, car or business loan.

My bank card will solely be used for flexible payments, ie. groceries, gas for my car, dining out, entertainment, etc. The commercial bank’s tools and services will help keep track of my spending habits and help me avoid a negative balance. I recommend you open up a free, low or no fees Savings account for rainy days.

Okay, so to recap for you. If you ever want to use your bank to borrow money, sign up with a credit union. They offer better borrowing incentives and often friendlier customer service. For the convenience of accessible locations, cool services and tools then choose a commercial bank.

Please share some financial advice of your own below and let my fellow readers and I know what institutions you like to use to better your credit score.