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What are Credit Unions?
Credit unions are non-profit corporations, this type of business makes for guidelines that are far more strict on each and every financial matter. Be it a home loan, credit card, or an auto loan, you name it. Since non-profit corporations like credit unions have more strict guidelines, they will usually only lend their financial help to a select group of people who have much higher credit scores than the norm. The reason for doing this helps lessen the financial losses in a far more effective manner than say banking businesses.
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The Threats to Credit Unions
1. For profit institutions: Banks are for-profit corporations and, thus, are the main competitors to credit unions. Banks are usually traded publicly, hence the performance of the banking institution is constantly under pressure from share holders for more returns. Sometimes, banking companies may loosen their collar around their underwriting guidelines so that they could help attract more deposits. Unlike credit unions, this fact makes banking institutions more riskier with the deposits they accept. For example, what if the depositor loses his job? Job security is one thing that banks cannot predict.
2. Poor debt to income ratio: Sometimes, credit unions may make exceptional choices for customers who aren't exactly "A class depositors" with higher-than-all-mighty credit scores depending how good your debt to income ratio looks. Let's face it, there's people out there who have no debt but then again there's a lot more people who have debt period. Credit unions are well aware of this, so if your income speaks higher than your amount of debt, thus making for an outstanding debt to income ratio, then the chances of them accepting you will be much higher.
3. Poor credit history: This is perhaps the next biggest issue following poor debt to income ratios, a poor credit history. Unlike banking institutions, who are far more likely to accept deposits from just about anybody (poor credit score or not), credit unions will only accept deposits from the customers who have exceptionally higher credit scores than the average.
4. Poor bank account balances: This has to be the most obvious threat of them all, a poor bank account balance. Let's face it, an individual's checking and/or savings account speaks volumes about the person, especially their credit and financial status. For example, do you really think that someone with $400 in their checking account and $100 in their savings account has a pretty good credit score? Or better yet, a fairly positive debt to income ratio? I didn't think so.