One of the biggest benefits of credit unions is that their interest rates on loans and cards are almost always lower than banks. However, the drawback is that their credit card reward programs are usually just average. Well, Pentagon Federal (better known as “PenFed”) is far from typical for a credit union… you get great rates plus above-average rewards.

PenFed offers a few different cards but their Visa gas card is definitely the most popular. It gives 5% cash back at gas stations (when paid at the pump, not inside) year-round without any caps.

How can you get one?

You can’t apply for the PenFed gas card unless you are a member of this credit union. What are the qualifications you ask? Well, if you want to apply for a PenFed membership there are various ways you can qualify:

• You are in the U.S. Military (Army, Navy, Marines, Air Force, Coast Guard, NOAA Corps, USPHS Corps)
• You are an employee of a qualifying organization – there are several dozen orgs, defense contractors, etc. on this list.
• You belong to a qualifying military-related organization or association
• You are an employee of the U.S. government – not all branches and divisions qualify, but there are dozens that do
• You are a relative or housemate of someone that qualifies
• You live/work at an eligible location (i.e. various military bases)

For many Americans, there’s a good chance you will qualify for at least one of the above criteria (and all you need to do is qualify for one). But if you don’t meet any of the above, you can still join PenFed credit union. Anyone can join PenFed credit union by making a small one-time charitable donation:

• National Military Family Association membership: During the PenFed application process you can join this organization by making a one-time $20 donation, which is tax-deductible.
• Voices For America’s Troops membership: This option is only a $15 one-time fee.

So in a nutshell, anyone can get the Penfed gas credit card by making a one-time donation as low as $15. Paying $15 for a 5% discount on gas is worthwhile.

But a closer review shows it comes with a catch

• For gas purchases which are paid for at the pump, the card pays 5% cash back.
• For all your other spending, you only earn 1/4% cash back
• There are no spending caps as is the case with some cash back credit cards.

Being that the PenFed 5% Visa gas card has no annual fee it’s a good offer, but only if you use it at the pump. You will be losing money if you use this card for anything other than fuel. Why? Because the 1/4% rebate on all other spending is 75% lower than even your basic run-of-the-mill credit card. So while you’re gaining on gas, you’re losing elsewhere.

However the biggest catch is the stringent approval process

If you think getting this is just as easy as any other credit card, you’re in for a big surprise! Often, but not always, the requirements are:

• Last 2 years of income tax returns
• Last 2 pay stubs
• If you have a husband or wife, you may need to also provide their pay stubs (even if they’re not on the card)
• Outrageously high credit score. How high? To give you an idea, I got denied from PenFed with a 790 FICO (that’s a real FICO, not FAKO) and a flawless credit history. Never a late payment in my life on anything and no debt of any kind when I applied.

Previously I always recommending people to apply for this gas card from PenFed, until I tried to get credit thru them myself. That headache, combined with the reduction of rewards from 1% to only 1/4% on everything else, I’m not exactly their biggest fan anymore.

Therefore for 2013, Pentagon Federal CU is no long the top choice. Instead I recommend this card, because it gives 3% on gas and high rewards on other categories too: