What even is a Credit Union?

As a Credit Union, we always get asked "what is a credit union?" - here's our answer...

Would you believe us if we told you that “what is a credit union” is one of our most commonly asked FAQs? As a member, you probably already know what we are and what we do. But surprisingly, a lot of people have never heard of credit unions (CU) and probably have no idea that they could join one.

Let’s start with the basics:

  • Credit unions are financial institions that offer credit and banking services to their members.
  • They are not the same as banks, but offer similar services.
  • Credit unions are non-profit, any profit they make goes back to the members.
  • The members of a credit union, own it.
  • Members have to meet the criteria of the CU’s common bond. This could include where you live or work, or what you do for a living.
  • CUs offer financial education, community inclusion & fairer rates for their members.

How is a credit union different from a bank?

Credit unions are very similar to banks, they offer similar services and operate in a similar way. Here at London Mutual, we offer current accounts, savings accounts, loans, overdrafts, and other services that you would find in a regular high street bank. Now you’re probably thinking “so you are basically a bank” and the answer to that would be no…

The main difference between a CU and a bank is that credit unions do not work for a profit and serve only to benefit their members. We offer financial education, and community support, as well as slightly more flexible underwriting to make borrowing easier for our members. Whereas banks operate in order to earn a profit, benefiting their shareholders. And of course, there will be times when the credit union does receive a profit from their borrowing services. This profit is either put back into the credit union and used to improve the services. Or it is paid out to the members as a dividend at the end of the year.

Who can become a credit union member?

Anyone can become a member of a credit union, you just need to find the right one for you. All credit unions have a common bond…

“The (common) bond of association or common bond is the social connection among the members of credit unions and co-operative banks.”


For example, our common bond includes people who live or work in Lambeth, Southwark, Westminster, or Camden. Our common bond also includes people working in a health or education occupation in Greater London, as well as anyone serving in the Armed Forces. Some credit unions might also include things like religious groups, family connections, organizations, etc.

What does it mean to be a CU member?

As a member of the credit union, you instantly become one of its owners. This means you have a say in how it is run, might earn a dividend back from any profits made, and can run to be on the board who manage the CU.

Treating everyone equally

Compared to regular banks, credit unions tend to offer slightly lower rates of interest on their lending facilities. This is because CUs are all about offering a fair and more adaptable service to everyone in the community, helping to tackle social exclusion. At LMCU we have taken the steps to create the fairest possible application process that we can. We use manual underwriting to make a decision on an application. This often means we will take into account the circumstances surrounding your credit score or past defaults, and use this to make a choice, rather than automatically saying no.

Giving back to the community

Credit unions exist to make positive contributions in their community and to their members. This can be in the form of better financial support and fairer rates and processes for their members. As well as working with local schools, charities, and organizations to encourage good financial behaviour. For LMCU that means providing people with tools to take control of their financial futures, including guidance, support to save, and access to affordable credit that gives them the chance to fulfil their potential.

Having your say

An annual general meeting (AGM) is held once a year, where all members are invited. This is the chance to have your say and speak with the board, and those working in the CU, to discuss changes and updates. They also hold smaller meetings throughout the year if they need to make a change to their policies. If this happens, again all members will be invited and are given the chance to vote for or against the change. The majority vote determines if the change will go ahead or not.

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