How to Join a Credit Union with Bad Credit: 5 Steps You Should Take

You may have heard of the benefits of credit unions over traditional banks, but if your credit is not that great, you may still be wondering how to join a credit union with bad credit. 

How much does your credit matter when trying to set up a new account at a credit union? Are there ways to compensate for your bad credit when looking to join a credit union, and what, if anything, are the compromises or sacrifices you'll have to make to do so?

How to Join a Credit Union with Bad Credit

Fortunately, credit unions will generally let anyone join who qualifies regardless of credit. Rather than basing eligibility for an account on someone's credit, a credit union will usually base it on a person's demographics.

Different credit unions serve different communities. Some of those communities are occupation or employment-based, such as a hospital or union-based credit union. Other credit unions serve people living in a particular geographic region. Whatever the criteria for joining a particular credit union, if you qualify, you will be allowed to join regardless of your credit status. 

That is not to say, however, that your credit does not matter when joining a credit union or is not relevant to starting an account at a new credit union. For example, your credit does come into play at credit unions in relation to your eligibility for loans and lines of credit. For these and other reasons, it is still wise to be mindful of the status of your credit and get it as much under control as possible when planning to set up a new account at a credit union. 

With that in mind, the following are five key steps to take regarding your credit to have the best, most successful experience setting up and managing your money in a new credit union account

join credit union with bad credit

1. Review Your Consumer Banking Report

Your credit is only one accounting of your financial history. Another is your consumer banking report or the overall history (generally speaking) of your bank accounts over your lifetime. 

Like credit reports are kept and produced by certain agencies like Equifax and TransUnion, consumer banking reports are also kept and provided by a particular agency, specifically ChexSystems. Operating under the same Fair Credit Reporting Act (FCRA) that governs consumer credit reporting agencies, ChexSystems is a countrywide agency utilized by over 7,800 credit unions as well as over 7,700 banks, comprising over 80% of the financial institutions in the United States. 

While a bad credit report won't lead to a rejection of your application for an account at a credit union, a bad consumer banking report just might. Your consumer banking report contains any problematic elements of your banking history over the years, including:

  • Outstanding debts
  • Mishandled money
  • Red flags or reports for infractions 
  • Unpaid overdrafts
  • Depositing bad checks or writing bounced checks
  • Suspected fraud

Note, if you have any such negative marks on your consumer banking report, not only could it cause you problems joining a credit union, but it also almost certainly appears in one way or another on your credit report. So this could affect your credit score as well. 

2. Seek Secured Loans

If it is a loan or line of credit that prompts you to seek a new credit union (or you foresee that possibility in your future with this credit union), consider exploring secured loans instead of the traditional unsecured kind. With secured loans, the credit union uses your deposits into your credit union account as collateral against your loan or line of credit. That said a loan or line of credit is typically limited to the balance in your account, and by extension, you cannot withdraw that collateral while the loan is still out or that credit is utilized. 

The upside, however, is that you have a much better chance of being approved for such a loan or line of credit than you do of being approved for an unsecured loan or line of credit. It is a way to quickly "double" your available capital, in a sense, which, if smartly applied, can go a long way toward helping you create that more stable and sustainable financial future. It can also be a great way to rebuild good credit, realistically and incrementally, one small, easily-repayable purchase at a time. 

3. Clean Up Credit Errors

It may not matter for getting a credit union account that you have bad credit, but it certainly doesn't help, and it certainly can't help to get a copy of your credit reports from all three agencies (Equifax, TransUnion, and Experian) to see if there are any actions you can take to clean them up and improve your credit. You may find old outstanding balances you were unaware you still needed to pay off, and you may see errors you need to dispute to have removed from your credit report. 

4. Consider "Second Chance" Accounts

Financial institutions know there's a huge market in redemption. That is to say; it behooves them to offer ways for people with less than perfect financial pasts to get back on the path to financial wellness again. Enter: second chance accounts.

Second chance accounts are, just as they sound, accounts tailored to the higher risk involved with people who have more imperfect financial records. They, therefore, tend to have more significant restrictions than their regular counterparts.

A second chance checking account, for example, (by far the most typical type of second chance account) may have a monthly fee or limitations on check writing or automatic direct deposits of your weekly paycheck required. 

In many cases, credit unions will offer to convert second chance accounts into regular accounts after you develop a proven history of financially-responsible behavior. 

5. Pay to be a Credit Union Member

While most credit unions base membership on affiliation with a particular group, be it interest, occupation or geography-based (among other possibilities,) some credit unions will allow you to join if you simply pay a certain membership fee.

Joining a credit union with membership fees can be even easier than joining one without, and may involve even less scrutiny or prioritizing of your credit or banking history.

If you're really concerned about being turned down for an account at a credit union because of your financial past, seek out a credit union like this where all you need to get in is the price of admission. 

Join a Credit Union Regardless of Bad Credit 

Credit unions can help to improve your credit. So it only makes sense that they be available to people with bad credit. You may simply have to agree to some greater restrictions or different types of products and services available to you than other members—or for certain products, at least—and you'll certainly need to meet all the credit union's requirements for membership and comply with all its rules for all members. With those simple understandings and agreements, your credit, however bad it may be, should not be a factor at all in you joining a credit union.

If you have questions about joining 121, we'd love to chat.

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