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If you have no credit history or damaged credit, qualifying for a credit card or loan can be difficult.
You could try a secured credit card, but you typically have to have money for the deposit. But credit-builder loans, like those offered by Self, offer consumers a chance to build credit — or rebuild credit — without requiring money upfront.
With a credit-builder loan, the amount you borrow doesn't come to you right away. Instead, your payments are held in a certificate of deposit, which is insured by the Federal Deposit Insurance Corp. Once you've made all the payments, the money is released to you.
Loans from Self are open to U.S. residents in all 50 states. Here's what to know.
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How Self — formerly Self Lender — works
Once a loan application is approved by Self, the loan amount is deposited in a certificate of deposit with one of its partner banks. You’ll make regular payments over the life of the loan. After all payments are made, you get access to the money minus the finance charges (the administrative fee and the interest you are charged). If you decide to close your account before it’s paid off, you can access the money in the CD, minus fees and interest, and the amount you still owe.
Self offers two-year terms for four different monthly payment options. The lowest payment is $25 a month; you can also choose payments of $35, $48 or $150 per month. There’s a nonrefundable administrative fee of $9, and the APRs do not exceed 16%, according to the company's website. Sample product: $25 monthly payment, 24-month term with a $9 administration fee at a 15.92% annual percentage rate. Please refer to self.inc/pricing for the most recent pricing options.
Self reports your payments to the three major credit bureaus, Equifax, Experian and TransUnion. Any late payments will hurt the credit you are trying to build. After about six months, your repayment activity should generate a FICO score if you didn’t already have one; your VantageScore can be generated sooner.
A larger loan won't help you build your score significantly faster. Be sure to pick a payment amount that is comfortable. A late payment could hurt your credit, and that’s the last thing you want.
During the repayment period, you have access to free credit monitoring and a VantageScore produced by Experian so you can track your credit score’s progress. You can also keep an eye on your credit with a free credit score and TransUnion credit report from NerdWallet.
How to apply for a Self credit-builder loan
The loan application is submitted online. To qualify, you must:
Be at least 18 years old.
Be a permanent U.S. resident.
Have a Social Security number.
Have either a bank account or debit card; a prepaid card is OK.
A credit-builder loan is different from a secured credit card in two important ways:
You don’t need money upfront to get the loan, though you do need income to afford the monthly payments. With a secured card, you typically have to pay a deposit upfront, and that amount is generally your credit limit.
You cannot access the money on deposit until the loan is paid off. With a secured card, you can use up to your credit limit anytime — though doing so will increase your credit utilization and hurt your credit until the balance is low again.
Self offers a related secured credit card
Self also offers a Visa credit card secured by money you have paid on your Self loan account. To qualify:
You must have made at least $100 worth of payments on your credit-builder loan.
Your account must be in good standing.
Your last three payments must have been made on time.
There's no hard credit inquiry, and — like the loan — the secured card reports your payments to the three major credit bureaus.
That gives you two types of credit: revolving (the credit card) and installment (the loan). That could help build credit faster because the scoring formulas reward consumers for handling different types of credit responsibly.
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Self loan fees and penalties
Payments 15 days late or more incur a fee of up to 5% of the scheduled monthly payment. Payments that are 30 days or more past the due date will be reported to the credit bureaus, likely damaging your score.
If the account continues to be late, it will eventually be closed and the loan will be reported as "defaulted" on your credit reports. You get the loan deposit amount, minus the fees and amount you owed when the account closed. A default also damages your credit.
Non-refundable fees: The Self Visa® Credit Card also has a $25 annual fee. Bad customer service: Self has a high number of negative reviews, flagging poor customer service, and trouble getting money back after the 24 months are up.
Keep in mind that Self may allow you to increase your security deposit for a higher credit limit, up to $3,000. The Self Visa® Credit Card credit limit can be increased in multiples of $25 at a time. The credit limit increase will be secured by money from your Credit Builder Account.
Paying a few days early won't hurt your credit score. You can pay up to one month in advance with no negative affect on your credit. Making more than one extra monthly payment shortens the length of your plan, which may impact your credit since it shortens the length of your credit history at Self.
After all payments are made, you get access to the money minus the finance charges (the administrative fee and the interest you are charged). If you decide to close your account before it's paid off, you can access the money in the CD, minus fees and interest, and the amount you still owe.
With the Self Credit Builder Account, you can typically choose to deposit $25, $35, $48 or $150 per month over a 24-month term (length may vary). However, taking on a larger loan doesn't necessarily mean you'll build or rebuild your credit faster.
If you have excellent credit, high income and low credit utilization among other variables, issuers may offer you a credit line of $30,000 to $50,000. However, it's possible credit issuers offer a credit limit even higher than that.
On our list, the card with the highest reported limit is the Chase Sapphire Preferred® Card, which some say offers a $100,000 limit. We've also seen an advertised maximum credit limit of $100,000 on the First Tech Odyssey Rewards™ World Elite Mastercard®, a credit union rewards card.
The best credit card with a $5,000 limit for bad credit is Bank of America® Travel Rewards Secured Credit Card. You can make a deposit from $200 up to $5,000 on the Bank of America Travel Secured Card, making your credit limit equal to that amount. The card also offers 1.5 point per $1 spent and has a $0 annual fee.
After it's paid off in full, the loan funds will then be distributed to you. Self lets you choose between four different monthly payment options: $25, $35, $48 or $150. And you can choose a loan term between 12 months and 24 months to pay off your loan.
Right now, you can only have one Self Credit Builder Account open at a time. After you complete one Credit Builder Account though, you can apply for another, with a few exceptions. You can also access the Self Visa ® Credit Card a few months after opening a Credit Builder Account if you're eligible.
Call 877-883-0999 and choose option 1. Please note, if you call from a number that is not on file with Self, you will need to verify your identity prior to receiving the option to cancel your account. You will then be prompted to verify your account information.
You can increase your Self Visa® Credit Card's credit limit by adding money to your Credit Builder Account. More specifically, once you've made enough savings progress in your Credit Builder Account you will see an alert in your account dashboard that you are eligible to increase your credit limit.
Your Credit Builder Account payout is the total amount you paid into your Self account minus interest, any one-time admin fee you may have paid to open the account, other fees charged (like late or returned payment fees, if applicable), and the security deposit on the Self Visa ® Credit Card if you have the card.
While self-financing has many benefits, it also has some drawbacks, including: Limited access to capital, which can limit the company's growth potential. Increased risk, as the company is solely responsible for funding its operations and growth.
Self reports on-time payments to the three major consumer credit bureaus, Equifax, Experian and TransUnion, which makes its credit-builder loan a good way to build credit — as long as you make payments on time and in full.
Payment history makes up 35% of your credit score. Self can help. By opening a Credit Builder Account and making your monthly payments on time, you can build positive payment history.
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