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.
So what should you do? My general suggestion is that you shop around for the best credit card deal, using an online comparison site, such as
CreditCards.com or
CardRatings.com.
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.
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11 Things You May Not Know About Your IRA
The most important part of your individual retirement account (IRA) is the fact that it is "individual". You can customize when you make deposits, take withdrawals and pay taxes on distributions. You can even control what happens to it after you die. Want to take advantage of all that your IRA has to offer? Read on for some little-known features that will help you get the most out of your contributions.
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11 Things You May Not Know About Your IRA
The most important part of your individual retirement account (IRA) is the fact that it is "individual". You can customize when you make deposits, take withdrawals and pay taxes on distributions. You can even control what happens to it after you die. Want to take advantage of all that your IRA has to offer? Read on for some little-known features that will help you get the most out of your contributions.
11 Things You May Not Know About Your IRA
1. You can contribute to more than one IRA.
It is possible to end up with more than one IRA for a number of reasons. For example:
· You had an existing Roth account and then rolled an old 401(k) into a Traditional IRA.
· Your adjusted gross income (AGI) rose to the point where you were no longer eligible to contribute to your Roth IRA, so you opened a Traditional IRA.
· You inherited an IRA from a loved one, but you already had one of your own.
· You maintained your Roth account and opened a Traditional IRA to take advantage of tax deductions.
Contribute to as many IRAs as you want, but the total deposited in all IRAs is limited to the annual maximum amount. For example, the annual maximum contribution for 2008 is $5,000. So, if Bob deposits $2,000 into his Traditional IRA, he can also contribute $3,000 to his Roth account during the same year.
11 Things You May Not Know About Your IRA
2. All IRA contributions must be made in cash.
This limitation may be irritating if you're rolling over an account and you don't want to liquidate the assets. Cash contributions force a new basis for investments inside the account. The basis of the IRA is important because when you take a distribution from a Traditional IRA, you pay taxes on the gains and income from your investments, but not on the basis.
11 Things You May Not Know About Your IRA
3. IRA losses may be tax deductible.
One of the main advantages of an IRA account is the ability to defer taxes on gains and investment income. But you can't use losses inside the IRA to offset gains. This is because the IRS gives you a reprieve after you liquidate the account: If the total distributions from your IRA are less than your basis in the account, you can deduct the loss after all assets are distributed from the account.
11 Things You May Not Know About Your IRA
4. You control your required minimum distributions.
Traditional IRA owners must begin taking distributions by April 1 of the year after they turn 70.5 years old. The minimum amount distributed is based on the balance of the account on December 31 of the previous year and the owner's life expectancy. For each year thereafter, the required minimum distribution (RMD) must be withdrawn.
If you have multiple Traditional IRAs, you don't have to take RMDs from all of them. You can combine the total balances from the end of the previous year to calculate your total RMD and actually take the distribution from one account or a combination of accounts. For example, you may prefer to liquidate the investments in one account over the investments in another account.
11 Things You May Not Know About Your IRA
5. All beneficiaries are not created equal.
One of the benefits of owning an IRA is the ability to transfer funds directly to beneficiaries without going through probate. This is because spousal beneficiaries can claim inherited IRAs as their own. This flexibility allows the spouse to control new contributions and distributions.
Non-spousal beneficiaries cannot treat inherited IRAs as their own. They can't add to them and they must completely liquidate the account within five years of the death of the owner. Keep this in mind if you plan to leave IRA assets to your children or grandchildren.
11 Things You May Not Know About Your IRA
6. A basis is needed for IRA transfers, but not rollovers.
It is common for individuals to move accounts from one financial institution to another. If you just decide to maintain the same type of IRA account with a different company, that's considered a "transfer". All assets are moved "in kind" (as they are), without liquidating anything. In this case, it's your responsibility to retain the original basis on the account; the receiving institution will request a copy of a statement proving the basis.
You need to have an accurate basis amount for Traditional IRAs, because distribution amounts above the basis are taxable. IRA assets above the basis can be rolled into other types of retirement accounts, but the basis must be maintained in the IRA, or it will be considered a taxable distribution.
A rollover involves moving your money from one type of retirement account to another. For a rollover, you must liquidate the previous holdings to move cash into the IRA, so the basis becomes irrelevant.
11 Things You May Not Know About Your IRA
7. You can deduct IRA fees from your taxes.
Financial services firms may charge annual fees on top of transaction fees for the purchase or sale of investments. You may be able to deduct these fees using 1040 Schedule A.
11 Things You May Not Know About Your IRA
8. Your annuity can act like an IRA.
Your annuity can operate under the same rules as an IRA. The benefit is that annuity policies were designed to provide retirement income for life. Some annuities also offer optional features not available in regular IRAs. The downside is that annuity premiums, which contain insurance payments, can be higher than other investments.
11 Things You May Not Know About Your IRA
9. IRAs are non-fiduciary accounts.
Brokerage accounts allow you to give your financial advisor written authorization to make investing decisions and routine transactions without notifying you first. Often, a flat fee is charged for managing the account. This type of fiduciary activity is not allowed for IRAs.
11 Things You May Not Know About Your IRA
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.
Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has been featured in the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times best seller
'Zero Debt: The Ultimate Guide to Financial Freedom.' 
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