It can be difficult to build credit when you have bad credit or even no credit at all. This is true, especially if you have no accounts reporting to the three major credit bureaus.
That’s where Self (formerly Self Lender) comes in.
Introducing Self: A Unique Path to Credit Improvement
Self is an innovative credit-builder loan that doesn’t demand an immediate cash deposit. If you’re striving to enhance your credit score while progressively saving money, this service may be an ideal fit.
How Self’s Credit-Builder Loan Works
The journey of acquiring a credit-builder loan with Self starts with applying for a Self Credit Builder Account. Once your application is given the green light, Self channels the loan funds into a certificate of deposit (CD). These Credit Builder Accounts are protected by the FDIC, ensuring your money’s safety.
Your repayment period for the Credit Builder Account is 24 months, based on the plan you select. Following successful repayment, you’ll receive your funds back, except for fees and interest.
Payments range from a minimum of $25 to a maximum of $150 per month. This lets you dictate the pace of your financial commitment. Bear in mind that these payments cover interest, implying that the total repayment sum will exceed the amount you get back. However, there’s a small bonus: you do earn a modest amount of interest on the CD account.
Benefits of a Self Credit-Builder Loan
When considering Self as a credit-building option, understanding its distinct advantages is paramount. Here’s how Self stands out:
Regular Reporting to All Major Credit Bureaus
Perhaps the most impactful benefit of a Self credit-builder loan is its robust reporting policy. Self consistently reports your monthly repayments to all three major credit bureaus—Equifax, Experian, and TransUnion.
This means each on-time payment is documented and can contribute positively to your credit score. As a result, with responsible use, you’re likely to witness an uptick in your credit rating over time, given that payment history is a crucial component of credit score calculations.
Promoting Disciplined Saving
Beyond its credit-building capability, a Self loan plays a significant role in fostering disciplined saving habits. Because your loan amount is placed into a certificate of deposit (CD), every payment you make is essentially a step towards savings. Over time, this can imbibe a structured approach to setting money aside, helping you maintain better financial health.
Flexibility of Payments
Self’s credit-builder loan is tailored to accommodate varying budgetary needs. The flexibility in monthly payments, ranging from $25 to $150, allows you to select a plan that aligns with your financial circumstances. Whether you wish to be aggressive in your credit-building endeavor or you prefer a slower, steadier approach, Self provides an array of options.
Potential for Early Loan Settlement
One of the conveniences of a Self credit-builder loan is the ability to clear your loan ahead of schedule. If you find yourself in a financially comfortable position, you can pay off your loan early. It’s crucial to note, though, that settling your loan prematurely would result in a shorter payment history on your credit reports.
Potential Drawbacks of a Self Credit-Builder Loan
While Self offers several benefits, it’s crucial to examine potential drawbacks to make a balanced decision.
The Cost of Building Credit
The most apparent downside of a Self credit-builder loan is its cost. Like any loan, the credit-builder loan from Self comes with interest. This means you will end up paying more than the loan amount in return for the service of building your credit. The interest on the loan is something to keep in mind when budgeting for your monthly payments.
Risk of Adverse Reporting
While the goal with Self is to raise your credit score, failing to make payments on time could lead to the opposite outcome. Late or missed payments can be reported to the credit bureaus, potentially harming your credit scores. The very tool meant to build your credit could thus, if mismanaged, cause harm instead.
Administrative and Potential Late Fees
Another potential drawback of a Self loan involves the associated fees. First, there’s a one-time, upfront administrative fee of $9. Additionally, you’ll face a late fee if your payment is more than 15 days overdue. This amount is 5% of your payment, adding to your overall loan cost if you struggle with on-time payment.
Early Withdrawal Penalties
While you have the option to pay your loan off early, withdrawing your funds early from the CD account could result in losing interest. Specifically, an early withdrawal would result in forgoing 90 days of interest. Although this penalty might not be significant, it’s an aspect to keep in mind if you’re considering a Self credit-builder loan.
The Application Process: Simple and Quick
Applying for a Self credit-builder loan is a straightforward process if you meet the basic prerequisites:
- Valid bank account, debit card, or prepaid card
- Email address and phone number
- Social security number
- Permanent U.S. residency with a physical U.S. residence
- At least 18 years of age
While Self doesn’t perform a hard pull on your credit report, they will check your ChexSystems report. Therefore, you can’t have any recent negative items such as unpaid fees or bad checks.
The application process, from beginning to end, can take less than five minutes. Once approved, payments commence one month after your credit-builder account is opened. Payment methods include manual payments each month or an autopay setup, ensuring you never miss a payment.
The Costs of a Self Credit-Builder Loan
Self provides four different tiers of credit-builder loans, each coming with a unique cost and payout. These include:
- $25 monthly payment over 24 months; $520 payout at the end
- $35 monthly payment over 24 months; $724 payout at the end
- $48 monthly payment over 24 months; $992 payout at the end
- $150 monthly payment over 24 months; $3,076 payout at the end
While Self is gathering data to assess if larger credit-builder loans accelerate credit-building, it is prudent to choose a plan you can comfortably afford, ensuring a successful repayment strategy.
The associated fees include a one-time administrative fee of $9, a debit card fee for each payment (avoidable by linking your bank account), and a late payment fee if your payment exceeds the 15-day grace period. Late fees stand at 5% of your payment, which translates to $1.25 for the $25 plan and $7.50 for the $150 option.
Moreover, if your payment surpasses 30 days, Self has the discretion to report the delay to credit bureaus. Complete repayment cessation is deemed as a default and can adversely impact your credit score and future financing prospects.
While Self permits loan prepayment without any penalty, withdrawing your CD funds prematurely will forfeit 90 days of interest—although this generally amounts to only a small sum.
When is a Self credit-builder loan a good fit?
A Self loan does more than just aid in credit score reconstruction. It also instills disciplined savings habits. The decision to opt for Self depends on your unique needs.
If your sole objective is credit score improvement, other strategies can also serve your purpose. However, if you seek a credit-builder account that documents timely payments without the need for upfront cash, Self might be a suitable choice.
Moreover, if you struggle with budget adherence and seek a rigid structure to encourage savings, Self could be a compelling option—provided you’re prepared to take on the inherent risks associated with any loan.
Alternatives to Credit Builder Loans
While deciding on credit-builder loans, it’s also essential to explore other credit-building options.
Secured Credit Cards
Secured credit cards are a viable alternative. These require an upfront security deposit, which typically becomes your credit limit. This deposit acts as collateral and allows you to build credit history.
Remember, with a secured credit card, prompt payments are vital to avoid interest. If you have a surplus amount (usually starting around $500) that isn’t designated as an emergency fund, a secured credit card might be a practical solution.
Interestingly, Self also offers a Visa credit card secured by money in your Self Credit Builder Account, without requiring a hard credit check.
Using a Cosigner
Another method involves using a cosigner for a traditional unsecured credit card, allowing their credit score and history to bolster your application. However, any late payments or defaults on your end will impact the cosigner’s credit score. Hence, this method requires a strong relationship and a comprehensive understanding of the associated risks.
Rent Reporting Services: An Overview
Rent reporting services are an excellent tool for those who are paying rent and want to use those payments to build their credit. Typically, rent payments aren’t reported to credit bureaus and thus, don’t impact your credit scores. However, with a rent reporting service, each on-time payment is documented and sent to one or more of the major credit bureaus.
This can be a valuable solution, especially if you’re a renter with bad or no credit history. By transforming a common, necessary expense into a credit-building opportunity, you can work towards improving your credit scores with payments you’re already making.
Final Thoughts
Building credit, whether recovering from past setbacks or starting anew, can be accomplished with strategic planning. Assess your personal needs to decide if a credit-builder loan from Self is the right choice for you.
It could be an ideal option if you’re looking to build a payment history without significant upfront cash. With its unique approach to credit-building, Self offers an accessible, secure, and disciplined route to improving your credit score and financial future.
Disclaimer: Credit Builder Accounts & Certificates of Deposit made/held by Lead Bank, Sunrise Banks, N.A., SouthState Bank, N.A. each Member FDIC. Subject to credit approval.
Sample loans: $25/mo, 24 mos, $9 admin fee, 15.92% APR; $35/mo, 24 mos, $9 admin fee, 15.97% APR; $48/mo, 24 mos, $9 admin fee, 15.72% APR; $150/mo, 24 mos, $9 admin fee, 15.88% APR. See self.inc/pricing
