Orchard Bank Card Review: Lifeline for Bad Credit

The Orchard Bank credit card doesn’t immediately look appealing: the Internet is full of people complaining that its high fees and interest rates are a scam. But for immigrants with limited credit histories, people with bad credit, and full-time students who don’t have a co-signer, a no-fee credit card may be out of reach. While credit card companies are falling over themselves to entice those with excellent credit, the alternatives are much more limited for people with no credit or who are recovering from a history of credit problems.

Anyone with poor credit looking for a credit card will pay through the nose in both interest rates and fees. Case in point: the First Premier Bank Aventium and Centennial credit cards, which have an annual fee of $75 the first year and $123 thereafter, a 49.99% APR, and a $300 credit limit. Ouch.

So the key is to re-establish credit and build a positive history in any way possible, and then move on to a regular credit card with no annual fee and lower interest rates. Since Orchard Bank is one of the few companies that issues unsecured credit cards to people with limited or bad credit, it may be the best option for many.

 

Secured credit cards and prepaid debit cards

There are two common alternatives to a regular credit card, and neither is particularly good: secured credit cards and prepaid debit cards.

	Unsecured (Regular) Credit Card	Secured Credit Card	Prepaid Debit Card
Improves Credit Score	Yes	Yes	No
Upfront Deposit	No	Yes – your credit line equals the deposit	Yes – only spend what you deposit
Line of Credit?	Yes	Yes	No

A secured credit card requires you to post upfront collateral equal to the amount of your line of credit – if you want a credit limit of $250, you’ll have to pony up that amount when you open the account, and you won’t get it back until you close the account.  In the meantime, you still have to pay interest on your purchases if you don’t pay your bill in full each month. The cards are also often riddled with fees: annual fees, processing fees, and the like.

Orchard Bank® Classic MasterCards
	An excellent credit card for help rebuilding credit reports to 3 major credit bureaus monthly! Acceptance at millions of locations worldwide, including website purchases and reservations Your account information is updated and at your fingertips 24/7 so you can manage it your way Email and text messages are available to remind you of your upcoming payment due date Knowledgeable customer service representatives to assist you with questions or concerns
Annual Fee Signing Promo APR, variable* Intro APR Promotions $39 - $59 the first year, $35 - $59 per year thereafter* None Min APR: 15.0%(V) Max APR: 25.0%(V) Default APR: 29.5%(V) Cash Adv: 20.9%(V) Purchase: None Bal Trans: None

Find a decent secured credit card

Some banks make you bleed through the nose for secured credit cards, and some will deny your application despite the reassurance of the security deposit. Still, a few good secured cards are out there. Credit unions tend to offer better terms and lower interest rates than traditional banks.

For those who don’t belong, or don’t want to belong, to a credit union, the Orchard Bank Secured MasterCard comes with a $35 annual fee that’s waived the first year, and a below-average APR of 7.9%. That’s one of the best cards around. However, it does require a $200 minimum deposit, so if you can’t pony up, you may be out of luck.

The Citibank Secured Card and Capital One® Secured Mastercard® are two other options. Both have an annual fee of $29, lower than Orchard Bank’s, but come with hefty APR’s of 18.24% and 22.9%(V) respectively. The Platinum Zero from Applied Bank actually has 0% APR, but since it costs $119 a year, we’d avoid it.

Secured cards do come with more fees than your standard card. However, a secured credit card does help build your credit score, so with good behavior  you can eventually qualify for a regular credit card.

Prepaid debit cards are similar, in that you have to deposit money up front, but after that it acts just like a standard debit card. You aren’t technically “borrowing” money – you can only spend what’s in your account, and then you reload it. Because there’s no credit line, it doesn’t help you build credit, and isn’t likely to help you qualify for a regular credit card line. It’s exactly like a checking account, with the added bonus of having to pay fees at every turn – monthly maintenance fees, ATM fees, reloading fees, and even usage fees are common.

If neither of these options sounds appealing, especially if you can’t or don’t want to deposit the money necessary for a secured credit card,  the Orchard Bank MasterCard credit cards are aimed at those with bad credit.

Setting your expectations

If you’ve been looking at the enticing offers that credit card issuers throw out (0% APR for 12 months! Bonus miles! Cash back!) the Orchard Bank credit cards doesn’t look particularly appealing. But Orchard Bank is one of only two issuers who offer traditional credit cards, without the nuisance of upfront deposits, to people with bad credit. And the Classic MasterCard is a much better option than cards like First Premier’s.

First Premier’s cards, the Gold, Classic, Centennial and Aventium, have a $300 credit limit and charge a $75 annual fee the first year and $45 thereafter. The catch: in addition to the annual fee, a $6.50 monthly fee kicks in during the second year, adding $78 a year to the annual fee (see the endnote for the fancy footwork behind this fee). There are also a host of “gotcha” fees: a fee to raise your credit limit, a $35 late fee, and a $3.95 charge every time you use First Premier’s online services. And lest we forget, it has a 49.99% APR. Compared to First Premier’s cards, the Orchard Bank MasterCard seems like the AmEx Centurion.

Details for the Orchard Bank Classic MasterCard

Compared with the ridiculous fees of First Premier, Orchard Bank’s cards are great deals. There’s a $39 processing fee, and a $59 annual fee that’s lowered to $29 the first year (effectively, you pay $68 the first year and $59 thereafter). Depending on your credit score, the interest rate falls between 14.9% and 19.9%. The cash advance APR is 20.9%. According to Credit Karma, the average credit limit is around $2,000. The penalty APR is 29.49%, but if the possibility of you missing a payment is high enough that the penalty rate is a factor for you, you might want to re-think getting a credit card for now. Instead, stick with a checking account until you’re more sure of yourself. Checking doesn’t help your credit score, but missing a credit card payment will most certainly hurt it.

Who qualifies for Orchard Bank?

Credit scores as low as 500-600 can qualify you for the Orchard Bank cards, much lower than the threshold for most traditional credit cards. The bank goes out of its way to help those with less-than-stellar credit, and most banks wouldn’t even consider an applicant with a credit score that low. Word on the street is that they’re fairly generous with their credit limits as well.

Orchard Bank has a poor-credit-friendly approval process: you fill out an inquiry form online, and they pre-qualify you almost instantly. The advantage of Orchard’s selection process is that the inquiry won’t appear on your credit history, which takes a hit if it’s requested too many times in a short period of time.

If you want to qualify for the regular (unsecured) MasterCard, you must draw a salary of at least $12,000 and have a valid social security number. This may be an issue for the long-term unemployed and recent immigrants.

So despite the fees and interest rates, Orchard Bank’s the way to go if you need time to rebuild your credit or build a history from scratch, and is the fastest way to work your way back up to a regular credit card. At least with their cards, you’ll be able to build your credit score without needing to post a lot of money upfront.

Endnote: Why does First Premier charge a monthly fee after the first year?

The Credit CARD Act of 2009 included a rule that a credit card’s fees in the first year could equal at most 25% of its credit limit. First Premier’s cards have a $300 limit, so according to the rule, they were restricted to charging at most $75 in fees during the first 12 months.

In response, First Premier launched a card that had a $95 processing fee, which was technically levied before the card’s issue and thus exempt from the $75 cap. The Federal Reserve replied, “Nice try.” In March of this year, the Fed clarified that any processing fees would count towards the first year cap. So, if First Premier charged a $25 processing fee on the $300 card, they’d be limited to a $50 annual fee.

So the bank dropped its processing fee and levied a straight-up $75 fee the first year, the legal maximum. But the CARD Act doesn’t restrict bank fees after the first year, so First Premier starts charging fees equal to 40% of the credit limit as soon as the Federal Reserve’s protection ends. Smart, right? Next to the First Premier Classic, Orchard Bank’s Visa and MasterCard are paragons of transparency and consumer friendliness.