Self’s Credit Builder Account can be an ideal way to increase credit scores. Not only is it cost-effective and manageable, but its effectiveness depends on responsible account usage.
This service reports your payment history to all three major credit bureaus (Experian, TransUnion and Equifax). Monthly payments will be reported, with on-time payments helping to increase your score.
What Is It?
Credit builders are loans designed to help consumers build up their payment histories. You make monthly payments and then at the end of your repayment period receive your loan amount back (minus interest). Lenders offering these products generally report your payment activity to all three major credit bureaus, which could increase your score if all payments were timely made. It is wise, however, to conduct a cost-benefit analysis before opening one, as this could help determine whether opening such an account would benefit both you and the lender.
Self is one company offering this type of product, providing a Credit Builder Account which allows individuals to borrow money without going through a traditional hard credit pull. Applying is entirely online and only takes minutes. Basic information will need to be submitted such as full name, address, phone number and social security number (this requirement must also apply when opening bank accounts in their names).
If approved, if will place your credit builder loan proceeds into a CD-secured savings account where your loan amount can be collected at the end of either 12 or 24-month repayment term. You will also have access to using funds from your savings account for payments if necessary.
Those who open a Self Credit Builder Account typically see their FIco scores increase by 60+ points within six to nine months. Unfortunately, your monthly payments could include interest and force you to spend more than what is earned over your repayment term. Keep in mind that even though these loans typically report to credit bureaus, they do not guarantee improvements to your score. Therefore, alternative loans can be an excellent option for people having difficulty applying for traditional loans or those who have poor credit histories. By building your credit sooner rather than later, there’s more chance that a traditional unsecured credit card may become available later.
What Do They Do?
Self is a credit-builder app that offers unsecured personal loans online. Applying is quick and simple, just provide your Social Security number, address, phone number and any other personal details needed to verify your identity before applying.
Self loans have no hard credit inquiries when applying, which should make getting approved easier if your current score or history are poor.
Once approved, your loan funds will be placed into a certificate of deposit account similar to a savings account. Monthly bills will then arrive for payment, which must be made timely and in full in order for your credit scores to improve. Any missed payments will be reported back to the credit bureaus and could potentially harm them further.
As you make monthly payments, the interest on the money in your account will accumulate over time. While it varies based on how much money is borrowed, its average interest rate should not be too high, helping build your positive financial history while simultaneously saving money.
Self’s users with no or bad credit typically saw an average increase in their credit scores of 45 points after using its service for one year, though individual results can differ considerably depending on individual circumstances. Furthermore, those who utilize its app with a secure income tend to get loans within 12-24 months using it.
Self’s customer reviews, however, have been mixed. Some customers like their service while others find it too costly. Some reviewers will claim that Self did not report timely payments to credit bureaus.
How Does It Work?
Credit builder accounts offer an easy and cost-effective way for individuals to improve their credit. Not unlike loans, these accounts act like forced savings plans by reporting your monthly payments directly to Experian, Equifax and TransUnion credit bureaus, and responsible use can boost scores significantly. You must remember to make payments on time, as failure to do so could damage it further!
Once approved for an account, funds can be deposited into an FDIC-insured CD and paid back over 12-24 months. Your monthly payment will be reported to credit bureaus and you’ll get all your money back when your loan is paid off. Depending on your needs, longer terms could yield greater interest with higher balances.
An excellent credit history can help you get approved for mortgage, car loan and bank accounts more easily, while no or poor credit makes things more challenging. Many lenders will only check one or two major credit bureaus before approving you. Self will report account information to all three major reporting agencies to increase the chances of approval on future loans.
There are other ways to establish or rebuild credit, including using a secured credit card. Be sure to understand all fees, and credit bureau reporting policies, before using this method.
Potential Program Disadvantages
While a self-credit builder program can help individuals establish or improve their credit history, the impact on their credit score may be relatively small. Credit scores are influenced by various factors, including the length of credit history and diversity of credit accounts. As such, individuals should not solely rely on a self-credit builder program to significantly boost their credit score.
Some self-credit builder programs may come with fees, such as application fees or monthly subscription charges. It is important to carefully review the terms and conditions of the program and understand the associated costs. While these fees might be worth it for some individuals, they can be an additional burden for those on a tight budget.
Self-credit builder programs often have specific guidelines and requirements that participants must follow. For example, credit builder loans may require individuals to make fixed monthly payments for a specified period. This lack of flexibility can be restrictive for some individuals who may prefer more control over their repayment schedule.