When you have bad credit, or even no credit at all, it can be difficult to build credit. This is true especially if you have no accounts that are reporting to the 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. If you want to build credit while saving money little by little over time, then Self might be right for you.
Self’s Loan Process
What exactly happens when you take out a loan with Self?
Once your application is approved, the loan funds are deposited into a certificate of deposit (CD). It’s FDIC-insured, so you know the money is safe. Then, you start to repay the loan before you have access to the funds. You can select from a few different plans, lasting either 12 or 24 months.
Monthly 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.
The true benefit of Self is that they report your payments to all three major credit bureaus. That means you really 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 loan early with Self, but then you won’t receive the prolonged payment history on your three credit reports.
How to Apply
Self is available in all 50 states and you’ll just need to meet a few basic requirements in order to qualify. Here are the specific requisites:
- 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, they will run a ChexSystems report. 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 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 either 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.
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 or not a larger self-builder loan helps to build credit faster. Your best bet is to pick a plan that you can comfortably afford in order to guarantee a successful repayment plan.
What other fees can you expect to pay with Self?
First, you’ll pay a one-time, upfront administrative fee that ranges between $9 and $15, depending on your loan amount. 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 monthly payment. 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 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 Loan
A Self loan can not only help you rebuild your credit score, it can also help give you the discipline to create a savings account. The benefits really 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 in a minute).
Do you want an 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.
When thinking about whether or not 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. You can even use it in conjunction with a credit builder loan to build a more diverse credit history. The downside to secured credit cards is that you need an upfront security deposit as collateral. When you use your credit card, you then make payments, which also include interest if you don’t pay on time.
However, 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. Pay off the balance in full to avoid interest and you still get those payments reported to the credit bureau.
Using a Co-signer
If you want access to a traditional unsecured credit card with better rates and terms, you could potentially use a co-signer. This lets you use their credit score and credit history to help enhance your application.
The problem, however, is that any negative marks you receive through late payments or even defaulting will affect your cosigner’s credit as well. You need to have a strong relationship with that person and make sure you both fully understand the pros and cons.
Building credit, either from past troubles or from scratch, can definitely be accomplished with a strong strategy. Consider your own personal needs to decide whether a credit builder loan from Self is right from you. If you want to build your payment history without a lot of upfront cash, it could be ideal.