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.
Self is a type of credit-builder loan that does not require a cash deposit right at the start. So if you want to build credit while saving money little by little over time, then Self might be right for you.
Self’s Credit-Builder Loan Process
What exactly happens when you take out a credit-builder loan with Self?
Once you apply for a Self Credit Builder Account and your application is approved, Self will deposit the loan funds into a certificate of deposit (CD). Credit Builder Accounts are FDIC-insured, so you know the money is safe. Then, you start to pay off your Credit Builder Account. You can select from a few different plans, lasting either 12 or 24 months. Once your account is paid off, you get your money back minus fees and interest.
Monthly minimum payments vary between $25 and $150, allowing you to choose how aggressive you want to be. The payments do include interest, so the amount you pay over the loan term will be more than the amount you receive at the end. You do, however, earn a small amount from interest on the CD account, although it won’t amount to much.
Benefits of a Self Credit-Builder Loan
The true benefit of a Self credit-builder loan is that they report your monthly payments to all three credit bureaus. Of course, that means you need to make sure you make those payments on time. Once you do, you’re likely to start seeing improvements in your credit score, as long as you’re taking care of your credit in other aspects of your financial life as well.
Also, you can pay off your credit-builder loan early with Self, but then you won’t receive the long payment history on your three credit reports.
How to Apply
Self credit-builder loans are available in all 50 states, and you’ll need to meet a few basic requirements to qualify. Here are the specific requisites:
- 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
- Minimum of 18 years old
If you meet those standards, then applying should be easy. However, while Self doesn’t perform a hard pull on your credit report, they will run a ChexSystems report. So you can’t have a negative item within the last 180 days for things like unpaid fees or bad checks.
Once you’re ready to apply for a Self credit-builder loan, the entire process can take fewer than five minutes from start to finish. If you’re approved, you’ll start making payments one month from the day your credit-builder account is opened.
You can elect to pay manually each month or set up autopay so that you don’t forget and risk making a late payment. After all, the goal is not to add a burden to your life but instead, utilize credit in a positive way.
Loan Fees
There are four different tiers of credit-builder loans from Self, and each one costs you a different amount. Your choices include:
- A $25 monthly payment over 24 months; receive $525 at the end
- A $48 monthly payment over 12 months; receive $545 at the end
- A $89 monthly payment over 12 months; receive $1,000 at the end
- A $150 monthly payment over 12 months; receive $1,700 at the end
Self says they’re still collecting data on whether larger credit-builder loans help build credit faster. So, your best bet is to pick a plan that you can comfortably afford to guarantee a successful repayment plan.
What other fees come with a Self credit-builder loan?
First, you’ll pay a one-time, upfront administrative fee that ranges between $9 and $15, depending on your loan amount. Then, when it comes time to start making your monthly payments, you’ll also pay a debit card fee if you choose that form of payment. It’ll cost you $0.30 plus 2.99% each time. You’re better off linking your bank account to Self to avoid having those fees add up over time.
Self also charges a late fee if you’re more than 15 days late making a payment. The amount is 5% of your payment. So for the $25 option, that comes to $1.25, and for the $150 option, your fee would be $7.50.
Self can report your late payment to the credit bureaus after 30 days, and if you stop repaying your credit-builder loan altogether, it’ll be considered a default. Both scenarios can cause harm to your credit score and limit your future financing options.
Finally, while you can prepay your Self loan with no fee, you will lose interest if you take out your CD funds early. Specifically, you’ll have to forego 90 days of interest, though that only adds up to pennies.
When to Use a Self Credit-Builder Loan
A Self loan can not only help you rebuild your credit score, but it can also help give you the discipline to create a savings account. The benefits depend on your needs. Are you simply trying to build your credit score? There may be other things you can do (we’ll talk about those below).
Do you want a credit-builder account that reports on-time payments but doesn’t require upfront cash? Then Self may be a good fit.
Finally, do you have trouble sticking to a budget and want a more solid structure to get yourself to save? You could definitely get this through Self — as long as you’re willing to take on the risk that comes with any type of loan.
Other Alternatives
When thinking about whether Self is right for you, it’s also wise to consider your other options.
Getting a Secured Credit Card
The first is a secured credit card. With secured credit cards, you typically have to pay a security deposit upfront as collateral, and that amount is generally your credit limit. You can even use it in combination with a credit-builder loan to build a more diverse credit history.
When you use your credit card, you then make payments, which also include interest if you don’t pay on time.
So if you have some upfront cash (usually starting around $500) that you don’t need as an emergency fund, you can use a secured credit card to make a small purchase each month. Then, pay off the balance in full to avoid interest, and you still get those payments reported to the credit bureau.
Self now offers a Visa credit card secured by money you have in your Self Credit Builder Account. With the Self Visa credit card, there is no credit check.
Using a Cosigner
You could potentially use a cosigner if you want access to a traditional unsecured credit card with better rates and terms. This lets you use their credit score and credit history to help enhance your application.
However, the problem is that any negative marks you receive through late payments or even defaulting will affect your cosigner’s credit scores as well. Therefore, you need to have a strong relationship with that person and make sure you fully understand the pros and cons.
Building credit, either from past troubles or from scratch, can be accomplished with a solid strategy. Consider your personal needs to decide whether a credit-builder loan from Self is right for you. It could be ideal if you want to build your payment history without much upfront cash.
