Are Self Credit Builder Accounts Worth It?

Are you looking to improve your credit? You’re in good company, though many people aren’t sure how to start. One legitimate way to kickstart your credit is a Self account (formerly known as Self Lender), which are available in the form of a credit-building loan, secured credit card or secured loan. 

Before getting started with your Self account, make sure you understand the pros, cons, and specifics of the different kinds of accounts.

What is a Self-Lender account?

Self has developed a suite of products that aims to help you build credit or reinforce your existing credit. It can help you do this because it takes on very little risk when lending you money. For example, with a secured credit card, you’re putting in the money that you’ll then borrow from. Or, with a credit-building loan, funds are deposited for you in an FDIC insured CD that you’ll have access to after repaying the loan. In addition to helping individuals work toward financial freedom, these accounts offer flexible options for building credit when you’re otherwise unable.

How does a Self account work? 

Available in three different forms, Self accounts are designed to help you build credit when traditional lenders can’t or won’t extend credit to you. Here are your Self account options: 

Self Credit Builder Loan

This type of Self account authorizes a loan in the form of a savings plan. You’re issued an FDIC-insured CD account in your name, and slowly pay off the balance over 12 months in equal payments. After you’ve paid off the balance of the loan, your account becomes available to you in addition to the interest you accrued over the term you’ve been paying it off. 

Secured Credit Card

Although these are used like a typical credit card, secured credit cards require a sizeable deposit upfront. With a credit limit determined by your deposited balance and credit history, secured credit cards offer immediate and flexible spending. 

If you don’t have a credit history, you can only spend as much as you’ve initially deposited. Keep in mind, secured credit cards usually have high interest rates which can exceed 20%, so make sure you’re repaying the funds each month. 

Secured Loan

A secured loan is similar to a standard loan, but is locked in with collateral from the borrower. Collateral can take many forms, like a house, savings account or car. You’re expected to pay back the loan over a specified period, establishing credit history and building credit as you do so. To receive this method of a Self account, you need to have a savings account or some other form of collateral. 

Pros of a Self account

Opening a Self account is essential for many people trying to get ahead of their finances. Self accounts could be the avenue you’ve been searching for to help you get started. 

1. No risk of further harm to your credit score

If you apply for a Self account and are denied, your current credit score won’t be penalized. The benefit of Self accounts is its accessibility for people with little-to-no credit, and it's meant to be a starting place for building credit. 

2. Avoid upfront deposits

Many credit builder loans require hefty fees and upfront deposits. Applying for a Self account only requires a $12 administration fee, though other fees could apply depending on the type of account you open. The cost of opening a Self account could actually save you money when compared to other types of credit builder loans.

3. Build your credit and credit history 

If you’re looking to strengthen your current credit, or simply get started building your credit, Self accounts are a viable option. Once you have credit and establish credit history, you’ll be able to apply for other kinds of loans and standard credit cards.

Cons of a Self account

While Self accounts can help you achieve your financial goals, they’re not for everyone. Here are the cons you should consider before moving forward with one.

1. Limits on the amount in your account

Self accounts exist as a springboard to financial freedom. However, Self accounts have limits. If you choose to apply for a Self credit builder loan, you have to wait to access your funds. 

If you choose a Self secured credit card, you’ll only be able to spend a predetermined amount of money. If you apply for a Self secured loan, you’ll be required to put up your savings account or other collateral. Pay attention to these limits and consider whether they’re worth the pros of opening a Self account. 

2. Interest rates can be high

Your monthly payments on the Self account you choose include monthly payments and interest. Interest rates vary depending on the type of account you open, but can be significant. 

Consider whether you’ll be able to make monthly payments before opening an account. If you make payments late you’re subject to late fees, which can set you back instead of helping you get ahead on your finances and credit.

3. Credit card deposit

The deposit necessary to obtain a secured credit card might be untenable for some people. If you don’t have extra cash on hand to put toward securing your credit card until you’ve successfully built your credit and can obtain products without security, then a secured credit card might not be the best route for you to pursue. 

Alternative options for building credit 

Self accounts are right for some people, but not all. There are alternatives to opening this kind of account which allows you to build credit on your own terms. One idea is to make your apartment or house payments on time and ask your landlord to report your timely history or payments to credit bureaus. 

Also, avoid signing up for loans you can’t repay and make sure that for all debt payments you're currently responsible for are paid on time each month. You could consider asking a family member with established credit to co-sign your loans or authorize your use on their credit card account to help diversify your credit mix and create a positive payment history. 

The Financial Gym Team