As millions of people have filed for bankruptcy protection in recent years, many Americans want to know how to rebuild their credit rating after a Chapter 7 or Chapter 13 bankruptcy. One perennial question I’m often asked is: What is a good credit card to obtain in order to rebuild credit after bankruptcy?
It’s a dilemma for many individuals because they don’t want to risk applying for cards over and over and getting rejected multiple times. Nor do those with poor credit histories want to be financially exploited by subprime credit cards that charge ridiculously punitive interest rates and sky-high fees.
Some people are even scared to open a credit card, because of problems they’ve had in the past. But you don’t have to let fear -– or past credit mistakes –- keep you locked out of the financial mainstream.
But I do also have a specific recommendation that’s worth considering: it’s the Orchard Bank Secured MasterCard. This secured credit card is actually issued by HSBC and has a lot of attractive features for those with bad credit or no credit who want to improve their credit rating.
For starters, the Orchard Bank card has a low annual fee and a low variable purchase Annual Percentage Rate. The yearly fee for this card is just $35, which is waived the first year. The variable APR, which is tied to the Prime Rate, is currently a slim 7.9%.
Additionally, it requires a low deposit amount, $200, to get started. By comparison, some other secured cards require a $500 minimum. With a secured credit card, whatever amount you put on deposit with an institution becomes your initial credit limit. If any fees or extra charges are imposed, that can reduce your available credit.
Another major benefit of the Orchard Bank card is that your payment history is being reported to credit bureaus: Experian, Equifax, and TransUnion. So if you handle this card responsibly, and make timely payments, you’ll reap the benefits of watching your credit rating improve over time.
Finally, one of the interesting things about this Orchard Bank card is that it actually screens you first, before offering you a credit card that matches your credit profile. And they do it in a pretty unique way, which many people with shaky credit will appreciate.
Essentially, they pre‑qualify you for the card before you formally apply, so you can see which card you have a better chance of being approved for. This pre‑qualification process is pretty quick — typically it takes about 30 seconds or so. And it does not affect your credit score. So that’s a much different model than other credit card companies that issue secured credit cards.
The idea behind getting a secured credit card, of course, is that if you’ve been through something like a bankruptcy, maybe even a foreclosure, or had some other major hit to your credit, you want to start to rebuild credit with a secured credit card. You want to show lenders, financial institutions and others that you are starting over and that you are now a better credit risk. You also want to create a better financial afterlife for yourself. The only way to do that is by paying your bills on time, month after month after month.
Now, for the drawbacks with the Orchard Bank card that you should know about. The card has fairly high fees if you do things like request a balance transfer, use credit card checks, or get a cash advance. The fee is 5% of the transaction, or a minimum of $5. Also, if you’re late paying a bill, the variable Penalty APR is a hefty 29.49%. Compared to other secured credit cards, this isn’t bad. But it’s still worth knowing if you decide to apply for this card.
Whatever credit card you choose, when you’re trying to re-establish credit, keep two things in mind:
-First, steer clear of secured cards with outrageously high interest rates and exorbitant fees.
-Also, make sure that whatever secured card you obtain is actually reported to the credit bureaus.
There’s no point in opening a secured credit card if a credit issuer isn’t going to report that card to the bureaus. That’s not going to help you rebuild your credit.
Conversely, a card like the Orchard Bank Secured MasterCard could put you on the road to perfect credit, helping you bounce back and improve your credit rating after bankruptcy or any other financial setback.