One in five American adults doesn’t have a credit score – whether it be from lack of access, lack of awareness, a history of discrimination, a lack of trust in financial institutions, or a myriad of other reasons.
The problem is, this lack of access to credit limits people ... well, a lot. It limits their ability to buy homes, to buy cars, and could cost them thousands of dollars over the course of their lifetimes in higher interest rates and less competitive loan terms.
A few years ago, our founder recognized both the problem and the opportunity this posed, and set out on a mission to change the status quo. From this, Self was born with a mission to help people build credit, particularly those who are new to credit or who might not have access to traditional financial products.
Yet what exactly is a Self credit builder loan and how could it help improve your credit? And, if you do decide to take the plunge, how can you give yourself a fighting chance at success?
We’ve put together some things that could help. But first:
Let’s break this down into its simplest parts:
If you’re thinking, wow that sounds great, but don’t credit unions offer that, too? The answer is yes. Well, some of them. In some local areas. If you know where to look.
One benefit of Self is that we’re available online or via our mobile app in all 50 states. Which means you can pull us out of your pocket (if you’re checking us out on your phone) any time, anywhere – even in your PJs.
With Self, there’s no more waiting for the banks to open or taking time off work to open an account. Besides, try walking into a bank wearing pajamas and see what happens.
A Self account helps certain individuals build credit by providing greater credit diversity for people who do not already have an installment loan, such as a car loan. It’s also a great alternative for people who aren’t able to put down $200+ on a secured credit card deposit, or for people who can’t get approved for revolving credit lines (like a credit card) just yet.
With a credit builder loan, you pay into your account over time with one of the four payment plans you choose. Essentially, you’re forcing yourself to save money while building credit.
Each month, we report your monthly payments – or your missed payments if that happens – to all three major credit bureaus (Experian, Equifax, and TransUnion). If you have a positive payment history to report, this could help improve your credit. However, if you have a negative payment history, or a series of missed or late payments, it would only hurt your credit.
Success with Self really depends on where you’re coming from and what your personal goals in using this product include. I would definitely encourage you, before you sign up for a Self account, to take a moment and think about what your definition of success would look like.
Is your goal to raise your credit score? To force yourself to set aside money for an emergency fund while building credit? Are you trying to build credit so you could purchase a car at the end? Or a cell phone? Are you trying to build responsible credit after a bankruptcy? Or are you just trying to build better money habits for yourself?
When your goals are clear, it can be easier for you to achieve them and help you set a clear path forward for yourself.
Now that we’ve set the stage, let’s take a look at some key things you should consider if you want to make the most out of your Self experience.
Before you agree to the payment terms and sign up for your Self loan, make sure you account for the cost of the administrative fee and the loan interest in your budget. Typically, the administrative fee varies depending on the monthly payment option you choose.
While our interest rates also vary based on the loan repayment term you choose, our Annual Percentage Rate (APR) maxes out at about 16%.
Ultimately, be sure to ask questions and understand exactly how much you’re paying before you sign up. That’s a good rule to keep in mind for any product, and financial products specifically.
We know it’s boring – and sometimes confusing – to read “legalese,” but there are a lot of valuable nuggets in there. And a lot of important information. So don’t overlook it.
And if there’s something you don’t understand, please ask! We want to make sure you know what you’re getting before you sign up.
We literally cannot say this enough, so I’m gonna say it again ... make your payments on time. Please. Pretty please? It's in your own best interest.
When it comes to your credit score, payment history accounts for 35%, making it the most significant credit score factor of your FICO score. This means that if you make payments on time and in full, you can improve your credit history. If you miss your payments or make late payments, your credit report will reflect that too. But showing future lenders that you don’t make payments is not really the way you want to promote yourself, now is it?
The good news is, we offer a 15 day grace period after your payment due date where you can make payments before you get charged any late fees. However, if you are more than 15 days late on your payment, you will get charged a late fee.
And if you’re over 30 days late, we’re required to report your missed payment to the credit bureaus, which could damage your credit score. So please, make your payments on time.
But if making payments right now really isn’t an option:
We understand that sometimes, life just happens. Illness hits, accidents happen, and financial hardships occur. While we never recommend that you close your account, we understand that sometimes you might need to, which is why we’re willing to help you out.
If you need to cancel your account for whatever reason, please call us and take care of it as soon as possible. Don’t miss your payments and risk late fees and possible termination. After all, if you miss payments, you could hurt your credit once it’s reported to the credit bureaus.
A few things to keep in mind though, if you do need to cancel your Self account:
Yes, you read that right. While you can, of course, pay off your loan early if you really want to, one of the major benefits of continuing to pay on your credit builder loan is to help build positive payment history for your credit report.
So if you pay off your loan early, make sure you “graduate” to either a second Self loan or to another credit building product. That way, you don’t close all your credit lines and potentially hurt your score. Especially not after you just put in the hard work to improve your credit.
While a Self account can certainly help you get started with building credit, credit is never just a one-and-done thing. Instead, think of your credit like a living, breathing thing – you have to keep nurturing it for it to grow. That means, if you use Self once and don’t do anything else afterwards, your credit score could decline again.
What are some other ways you can keep building credit after Self?
Many of our customers end up using their savings to “graduate” to other credit products. This could include putting the money you’ve saved towards a deposit on a secured credit card (and we actually made that a lot easier with the Self Visa® Credit Card), or towards a down payment on a car loan or cell phone, for instance.
We’re here for you and we’re happy to help. If something doesn’t make sense, don’t struggle through it on your own. Give us a call, send us an email, use the chat feature, or message us on social. While we can’t talk account details on public platforms, we’re happy to help however we can.
At the end of the day, remember that Self really just provides a tool. Like any tool, it can either help or hurt, depending on whether or not it’s the right fit for your personal situation and needs. Ultimately, it’s how you use the tool that counts.
Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to help people build credit and savings.