I hate credit. I hate having to build it, maintain it, check on it, worry about it…
… but, we don’t live in a cash-only world. A lot of people need to borrow money to get things done. And, a good credit score saves you money. That’s why I was excited to learn more about Self Lender and do a full review to see how this credit boosting alternative to credit cards really works.
Your credit score is important
I lean into this because I have firsthand experience with how difficult it is to bounce back from a credit mishap. In three months, I went from an 800 to a 564 over a random error with my student loan pay off. Then it took me nearly a year doing everything I could to build it back to 700.
I know people who would just be like, “Hey Bobby, no big deal, credit scores are lame.” But here’s what the difference in 564, 700, and 800 is according to the FICO scoring range:
- In the 300-579 range (very poor rating), you’re receiving the highest interest rates if you’re even approved for loans or new lines of credit.
- In the 670-739 range (good rating), you will receive the middle of the road rates, and 8% of applicants in this range will become delinquent in the future.
- In the 800-850 range (excellent rating), you will receive the lowest rates and are open for the best offers.
Had I been about to buy a house, a 564 could have crushed that plan – ain’t nobody buying houses with cash, or at least the majority of people aren’t.
M$M tip: If you’re interested in seeing what mortgage rates would look like with different credit scores, down payments, and in your area, NerdWallet has a great mortgage rate calculator.
Because I did have an excellent credit history up until that mishap, I was able to rebuild my credit score by practicing good credit-building habits. But if you have zero credit or a history as a subprime borrower, Self Lender could be a good option for you.
What is Self Lender?
In addition to credit monitoring tools, Self Lender offers something called a Credit Building Account to help you build or rebuild your credit. Rather than borrowing money to spend, with Self Lender, you borrow a small amount of money to save from one of their partner banks.
As you make payments on your loan, the bank will hold your money in an FDIC insured CD that will be released to you once you’ve paid off the loan. You will accrue a small amount of interest on your CD, but you will also lose a little bit in interest charges (it’s still a loan).
Self Lender is part of a forced savings account and part practice loan. You get the benefits from both when you’re finished – a nice chunk of money to use for something important and positive marks on your credit reports. And yes, Self Lender reports to all three of the major credit bureaus.
After you are approved for your Credit Building Account, it takes two steps to build a loan that works for you:
Step 1: Choose the amount of money you can commit to paying every single month. This could be $25, $48, $89, or $150. At $25, your loan period will be 24 months, but for $48 and up, your period will be 12 months.
Step 2: Activate your Self Lender account by paying a $9-$15 nonrefundable fee.
The cost of using Self Lender
After you’ve paid your loan, you will get your money back plus the small amount of CD interest it’s earned, but you will lose money because you are paying interest over the course of the loan.
Building your credit score like this isn’t free.
Here’s a breakdown that shows you the actual cost of using Self Lender:
|Monthly payment||How many months?||Amount||Activation cost||Loan interest rate||APR|
So, in simple terms, what does the credit builder account actually cost?
|Monthly payment||How many months?||Activation cost||Your total cost||You get at end|
|$25/month||24 months||9||609||$525 plus CD interest|
|$48/month||12 months||15||591||$545 plus CD interest|
|$89/month||12 months||12||1080||$1000 plus CD interest|
|$150/month||12 months||12||1812||$1700 plus CD interest|
Self Lender vs. other options
Self Lender isn’t the only option if you are wanting to build or rebuild your credit, such as:
- Secured credit card. A secured credit card is backed by a cash deposit that typically makes up all of your credit limits. The deposit is usually around $200 and reduces the risk of loaning you money. You can use a secured credit card in the same way you would a regular (unsecured) credit card. If you make on time payments, once you close your card and transition to an unsecured card, you will receive your deposit back.
- Finding a co-signer. Some people take out small personal loans and ask a family member or close friend with a good credit score to cosign on the loan. The risk here is on the co-signer because if you don’t make your payments on time, they will also take a hit on their score and be partially liable for the loan if you default.
- Becoming an authorized user. If you can find a family member willing to add you on as an authorized user, you can benefit from the responsible use of their card, but don’t be a jerk and rack up a bunch of charges on their account.
Is Self Lender worth the cost?
This is tough to answer because there are free ways to improve your credit score or at least ways that cost less. With a couple of the options, I listed above (taking out a loan with a co-signer or becoming an authorized user), you become a liability to someone else. They run a huge risk by letting you benefit from the good credit they worked so hard to build, and if you aren’t being responsible, it can wreck their score and potentially your relationship too. So, while free, they come with pretty big risks.
I think using Self Lender is placing financial responsibility in your hands, no one else’s. You will, however, have to pay for the help of a third party who is willing to do business with you.
What you pay Self Lender to use one of their Credit Building Accounts will possibly pay for itself over time once you get better rates on credit cards, loans, reduce the amount you pay on deposits for utilities, and more. And while yes, you can use cash and not need credit cards, utilities are a must and cost more in deposits with a low credit score.
Really, deciding whether or not Self Lender is worth it for you will depend on how quickly you want to boost your credit score and how you’re willing to do it.
Other things to know about Self Lender
Late payments. Payments that are 15 days late will incur a penalty of 5% of the monthly payment. After 30 days, a late payment will be reported to credit bureaus. If they continue to be late, your account will eventually be closed and reported as “defaulted” on your credit reports. You will receive back what you have paid on the loan, minus the fees.
Not everyone will qualify. If your history with bank accounts is negative, you may not qualify for Self Lender.
Applying for Self Lender is not a hard pull. When you apply for a Credit Building Account with Self Lender, they run a report through ChexSystems that looks at your retail banking history. ChexSystems is a nationwide consumer reporting agency under the Fair Credit Reporting Act.
How to build your credit score for free
When you are starting from zero, you really don’t have many other options other than the ones listed above, including a Self Lender Credit Building account. If you have really poor credit, then it’s possible that you have some debt to deal with. If that’s the case, here are some free ways to repair your score:
Always make on-time payments. At the very, very least, even if you can only pay the minimum payment, pay your credit card and loan payments on time. On time payments makes up a big part of your credit score, so it’s a necessary place to start. You can set up auto payments, set reminders on your phone, etc. – just make sure those payments happen on time.
Get rid of anything that is in collections. You want to get things out of collections ASAP. To do that, you need to find out who owns your debt because sometimes your debt is sold off to a third party collections agency. Finding out who owns your debt will affect who you pay.
Fix your utilization rate. Your utilization rate is the amount of credit you have available compared to your debt, and the general rule is that it should be 30% or less. The obvious option is to focus on paying down your debts, but some people (the ones who can be responsible credit card users) can try calling their lenders to extend their line of credit. This can backfire if you just spend that extra money, so be careful.
Avoid any hard inquiries. Anytime you apply for a new credit card or loan, a potential lender will run a report which will ding your credit score a bit. You can recover in a few months, but when compounded with other credit issues, this can really hurt your score.
Don’t close all of your accounts. The age of your credit is a factor in your score, so if you have older accounts that you can pay off, keeping them open even after you are finished paying them off will help boost your score.