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Orchard Bank MasterCard

Orchard Bank Card Review: Lifeline for Bad Credit

by on December 20, 2010

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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.

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.

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  • http://www.facebook.com/people/Albert-Wesker/100001692562133 Albert Wesker

    Orchard Bank credit cards ARE A TRAP!  If you can afford to, DO NOT APPLY FOR THIS CARD!

    The reason being is that I, like most people with these, had limited credit and started off in the Medium Risk zone.  The terms were a $75 annual fee and a credit line of $300.  Since this was one of my first cards, I was informed  that my credit limit would increase once I established a good payment history and a rising credit score.

    TWO YEARS after I got this card, I managed to raise my credit score to “Very Low Risk” (740+). I have never over charged the card, and have always paid more than the minimum payments on time.  However, MY LINE OF CREDIT IS STILL $300.  Furthermore, for reasons that they fail to explain on both their website and customer service phone line, THEY WILL NOT INCREASE THE CREDIT LIMIT, AT ALL…INDEFINITELY.    It should be noted that since I got this one, I have obtained 2 other credit cards with $8000+ credit limits.  

    So, I’m paying $75 a year for a card with a $300 limit….25%.   I believe this is reprehensible, and even more costly to others just starting out.  Had they mentioned they wouldn’t increase the limit BEFORE I applied, obviously I never would have gotten this card.  But it looks like I’m stuck with it, and hope others don’t fall into the same trap.    I don’t think all banks are doing this, so if that’s the case USE ANOTHER BANK!

    • http://www.nerdwallet.com/ Tim

      Hi Albert, I definitely understand your frustration. Not getting a credit line increase that you’ve been led to expect does sound shady.

      With that said, however, it sounds like the card has served its purpose for you. By building up your payment history with the Orchard card, you were able to qualify for other unsecured cards with much higher limits, and improve your credit score. So now it sounds like you would be happier by just getting rid of the Orchard card.

      I view the Orchard card as a stepping stone toward better credit rather than a permanent credit solution. Once you’ve moved on, don’t look back :-)

      • Bogoa2000

        Tim, good one, it sounds like Albert is a person who doesn’t appreciate a starting point. Ochard worked for me and now bigger and better things.

        • Ariesboy2010

          I filed BK a year ago and Orchard bank gave me a credit card with a $750.00 credit limit with my deposit and at a 14.99% APR… I’m happy so are. Yopu can always try Capital one They gave me one too…..

          • Ariesboy2010

            Sorry that was suppose to say with NO DEPOSIT!!!!

      • Jamellarolle

        This sounds like a representative from Orchard Bank,doing communitcation- research! lol

        However, it’s true what NerdWallet stated, it served its purpose. I think I might try it, I want to build my credit back up. BTW, I think it states now on the application (discreetly) your deposit is your credit line when you open up your account, so I think I’ll put at least $500 on it.

  • Fiddles2

    I restarted my life after a bankruptcy with orchard bank and they did well for 4 years and when I asked them about dropping the annual they said they couldn’t. They said they didn’t have any card like that. So I have paid it off and tried to cancels the account. They will not give you a confirmation number for this Why I don’t know. And it appears the account is not closed 20 days later. When I called them again they said “It was closed and you should have gotten a letter in the mail saying the same” When I told them I have a new statement from them but no letter saying it’s been cancelled. They tell me that they must have sent it to my old address from seven months ago, but why did I get this statement at this address. So you can send me a statement but not this letter saying this has been cancelled and or closed. WOW. They are a mess. They gave me credit when no one else would but they won’t close the account and most of them don’t speak understandable English but they read a script real good. And know the word “I’m Sorry”. Well so Am I. To have a good working relationship end this way is so sad.

  • A1707602

    I cannot trust a bank that sends spam to my e-mail account. Spamming is a crime. I have never done business with them and I assure you that I never will.

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  • NoOrchard

    8 weeks ago I applied for the Orchard Bank Secured Visa Card, in hopes of starting to build my credit score. 2 weeks after my initial application, they sent me a letter asking for more information which I gave them in a prompt and timely manner along with a check for my savings account linked to the card. 2 more weeks go by and I get another letter asking for yet more information, which again I provided everything they asked for. 2 more weeks go by and nothing, I called the bank to inquire, and they still wanted more information, a copy of my Social Security Card and copy of my most recent pay check. I sent this information in and few days go by and now the savings account if open and my check has been cashed by the bank. More time goes by and still no card. Here we are 8 weeks later, and I go onto the Orchard Bank web site to check the status of my application: in order to do this you have to put in your SSN and Zip Code, which I did. I get a message stating that they are unable to finalize my application because they need my SSN???????????? Wait a minute, they just found my information in the system with my SSN and they can’t process my application because they don’t have my SSN??????????? My advice it to stay away, go to the bank where you have your checking account and see if they can work with you. These people are ridiculous!

  • justyna

    lodeif o
    f