Credit unions are finance institutions that essentially do almost all what banks do. Through a credit union you can get access to a savings, a checking or amoney markets account, as well as access to a personal or a car loan, a mortgage or a home equity loan. However, these credit unions are often much smaller institutions designed to serve small communities of people.
The process of choosing a credit union is somewhat similar to that of choosing a bank basically because you are always looking out for the financial institution that will offer you the best service, at the best rate and most importantly ensure your money stays safe.
Here are the pros and cons of a credit union.
#1 They are primarily not for profit institutions
Credit unions are primarily not for profit meaning their loyalty lies with the members who are the primary owners. This means that their services will always be structured for maximum benefit to the members. The disadvantage with this is that since they are not for profit, shareholders are not likely to get much value from their shares in the company in comparison similar shares in other profit making institutions.
#2 They are more flexible
In comparison to other financial institutions such as banks, credit unions are much more flexible in terms of their assessments before granting loans to customers. They are also more human in the way they handle customer bank accounts. This is owing to the fact that customers are actually shareholders. The only challenge with this is that credit unions often expose themselves to risks of default on payment by members because of leniency when doing credit checks.
#3 Branch and ATM locations are limited
Due to their small size, credit unions have a smaller branch and ATM network and this means they are only available in limited locations. This becomes an inconvenience especially if you need to access cash quick. However, some credit unions have solved this by incorporating an online portal that enables its members to carryout banking services from anywhere provided there is internet connectivity.
These may be referred to as cons but in actual sense, they do not affect your bottom line. The financial services you get from credit unions are much more beneficial and friendlier as compared to other financial institutions. What we mean is, these are not really cons in our opinion.
If you have ever tried applying for a loan or a mortgage at a bank or a credit union, you are familiar with the term – creditscore. This is essentially a number that is generated by a computer after making calculations based on your credit history to determine whether you are eligible for a loan. This number is what a lender will use to decide whether or not to approve your loan application or what type of loan to give you.
Here are a few things you should be aware of about your credit scores.
The basics of credit scores
Basically credit scores are primarily meant to make decision making about lending easier for finance institutions. At the end of the day, a bank or a credit union needs an assurance that you will not default on the loan they intend to extend to you, so it makes sense for them to check your borrowing history to get an idea. Your credit score will paint a picture in terms of how much money you have borrower in the past and successfully repaid or defaulted on repaying.
The types of credit scores
There are many credit scores currently in use each depended on the scoring model that is in use. The most common used score is FICO which is the preferred score for home and auto loans. This score looks at your debt amount Vis a Vis your past repayments. It is however worth noting that at the end of the day all these scores make the same calculations i.e. they try to predict whether or not you will repay the loan.
The scores basically summarize the following:
The length of credit
The type of credit
Since some people may not have a credit history, there are alternative credit scores that seek to find other insight on you such as your payment habits when it comes to your bills such as utilities and rent.
How can you find out what your credit score is?
All US consumers are entitled to free credit under federal law therefore you can get your report from Experian, TransUnion and Equifax, which are credit reporting agencies. You could also ask for your score from your lender during the time you are making an application for a loan. Always be careful especially with regards to websites offering free scores because a good number of them may be scams or may offer you inaccurate information.
All in all, the best way to maintain a good credit score is to avoid debt.
By now you probably know that credit unions are some of the best places to save money as well as get loans. They offer a number of free services such as free checking, and have very competitive rates for their savings accounts as well as loans.
A number of people have passed on the chance to open an account with a credit union because they feel intimidated by the process. Unknown to them is that the process is quite easy.
Here are 3 tips on how to open an account.
First: You have to play the field
Registering for membership to a credit union is often the first step to joining the union. You cannot enjoy its benefits if you are not a member. It is easy though. Generally, members of a credit union usually have something in common. You may be eligible to join the union because your employer has a relationship with it, the credit union belongs to the community you live in or your occupation may automatically entitle you to membership. These are just some of the things that may make you eligible to join the credit union but keep in mind there are many more. In most cases you will have several choices to choose from so be sure to choose a credit union that you feel is offering products and services that suit you and at a rate that best suits you.
Second: Make a modest deposit
Once you have made the decision to join a particular credit union, the account opening process is very straight forward. It’s as simple as walking in and filling out an application. Just like with any other application for a financial account, you have to provide your details such as Tax ID No. or your Social Security No., physical address, a valid identification document and of course the reason you think you are eligible to join. Membership starts the moment you purchase shares in the union which is done by a modest deposit. It mostly ranges between $5 and $10. Be aware that some credit unions may decide to check your credit history before opening your account.
Third: Start using your account
We told you it was easy. You are now a member of the credit union and you now have access to all the services. If you are employed, it is much easier and convenient to have your employer directly deduct your union contributions from your paycheck. This means it goes directly hence lowering your chances of forgetting to make your deposits. You can also opt for electronic payments. Be sure to set up text or email alerts.
It is good to know that there are federally insured credit unions and these are the safest for you since your money is as safe as it would have been in a bank account.
What has been your experience with credit unions? We would love to hear from you.
Debt to income ratio is the calculation showing the portion of your monthly income thatis allocated to the payment of debts. This, together your credit score are the major factors that determine whether you will have access to a loan.This is the information that guides both you and the lender in figuring out whether you will be able to cover your monthly repayments.
This is how it is calculated
For you to be able to calculate debt to income ratio, all you need to do is sum up all your monthly debt repayments then sum up all your total monthly income then divide the two.Your monthly debt payments are essentiallyan aggregation of all the minimum payments from your income that go towards settling your loans.
What is meant by a good ratio?
The reason lenders insist on a good debt to income ratio is to ensure that as a borrower you can actually afford the loan you are applying for. It is in your best interests to be able to comfortably cover your repayments and avoid widening your debt burden. For most lenders, the debt to income ratio has been fixed at 36 per cent as a maximum, whereas others have it fixed at 55 per cent. It often varies from one lender to the other.It is generally advisable not to put too much strain on your debt burden by exhausting your debt to income ration.
This is how to improve your ratios
In the event your debt ratio is high, you have no option but to bring it down in order to be able to access loans. This can be achieved through paying off your outstanding debt, find a way of increasing your income, hold off on taking in more debt or plan to make a bigger down payment on your loan.
Make an effort to have better control over your finances as the less debt you have, the more money you have available for other things like savings, education as well as retirement.
Before borrowing money it is advisable to know what the terms of payment are going to be. It is therefore important to fully understand how loans work so that you are better placed to make better decisions about debt, to be more specific, how to avoid debt.
So, before taking that loan, here’s what you need to know.
#1 You need to understand the cost of money
Loans usually come with a number of costs ranging from interest, transaction fees to insurance. So, it is important to understand what it actually costs to get money. This knowledge is meant to help you make better decisions in terms of what type of loan to take, who to take it from, how much to borrow and how long to spread out the repayments. The goal is to minimize the costs.
#2 You need to understand the repayments
A loan is referred to as so because it is money you are going to repay. Generally, loans are paid back over an agreed period of time. The repayments are normally paid on a monthly basis are split into two, repayments for the loan itself and repayments for the interest accrued. A loan repayment spread out over a long period of time attracts smaller monthly repayment amounts but a higher interest whereas a loan repayment spread out over a short period of time attracts higher monthly repayments but a lower interest.
#3 The process of qualifying for a loan
Loans are not just given, you must qualify for them. Often, a lender will only give you a loan if they are confident that you will be able to finance the repayment. It is at this point that your credit score becomes important. A good score means you are more likely to get a loan whereas a bad score makes things much difficult for you. Your income also matters because it determines whether you will have enough money to make the monthly payments. In the event you have a bad score but you have something valuable to put as collateral then you may be able to access the loan. There is also an option for your loan getting co-signed by someone with a good credit score which means they assure the lender that they will repay the loan in the event you can’t repay it.
We trust that you are now better informed. Do share with us your thoughts on this article.