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Banking and borrowing

Credit unions. What are they and how do they work?

Credit unions are becoming more and more popular as an alternative to the high street banks and expensive payday loans. But what exactly are they and how do they work?

The main difference between a high street bank and a credit union is that a credit union is a cooperative financial institution. This means that the people who use the credit union have a say in how it’s run rather than this being left to shareholders to decide.

There are lots of reasons why people are choosing credit unions over banks but here are a few of the main ones:


  • Having a poor credit rating or having difficulties opening an account with a high street bank
  • Supporting a local cooperative that doesn’t make a profit for shareholders
  • Having the flexibility to save what they can, when they want to
  • Credit unions may be more willing to help people on a low income or who don’t have a previous record of borrowing and they provide an alternative to payday loans

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How do credit unions work?

Because credit unions are cooperatives they operate in a very different way to a high street bank.


  1. They are run by their members on behalf of their members
  2. Lots of smaller credit unions rely on volunteers, only the larger ones have paid staff
  3. Most credit unions use their members money to run the services they offer
  4. Members of the credit union are rewarded rather than paying outside shareholders

Visit Mutual Financial Services website, as they can help you find a suitable credit union. All you need to do is put in some basic details about where you live and who your employer is.

How do I join a credit union?

Most local areas have a credit union, but before you can open an account with them you’ll have to have a ‘common bond’ with that credit union. Every member of the credit union will be linked in some way, for example:


  • Living or working in the same area
  • Working for the same employer
  • Belonging to the same trade union
  • Belonging to the same church or other association

As long as one person in your household shares a ‘common bond’ with a credit union then anyone in your house can normally join.

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Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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