Having bad credit can sometimes feel like a trap. It can be hard to get approved for loans, credit cards, and even housing. A bad credit score can hold you back from achieving your financial goals.
Self is a company that aims to help people with bad credit improve their financial situation. One way they do this is through credit builder loans.
In this article, we’ll take an honest look at Self credit builder loans. We’ll discuss what they are, how they work, and whether they’re a good option for you.
Looking to improve your credit score? Read on!
What Is a Credit Builder Loan?
Before we dive into the review, here’s a quick overview of what credit builder loans are.
A credit builder loan is a type of loan that helps you build or repair your credit score—no surprises there. When you make payments on a credit builder loan, the lender reports this to the credit bureaus. This helps you establish a positive payment history and increases the age of your accounts.
Sounds great so far, but couldn’t that apply to any loan? Yes—but there are two key things that make credit builder loans different:
- The loan amount is usually very small. Credit builder loans typically range from $300 to $1,000, although there is a fair bit of variety here.
- You don’t actually receive the loan amount upfront. Instead, the lender deposits the money into a savings account or certificate of deposit (CD) on your behalf. Once you’ve made all of your payments, you can withdraw the money.
Now that we’ve got that out of the way, let’s take a closer look at Self’s credit builder loans.
Self’s Credit Builder Loan Review
Self has decided to call its credit builder loans “Credit Builder Accounts,” but they work just like any other credit builder loan.
You choose a Credit Builder Account from Self’s selection of four plans. Then, you make monthly payments for the duration of the term. Once you’ve made all of your payments, you can withdraw the money from your Credit Builder Account—minus administration fees and interest.
Now, let’s dive a bit deeper.
Self Features & Benefits
Self’s credit builder loans have a few features and benefits that are worth mentioning:
- No minimum credit score. Self doesn’t do a hard pull on your credit score when you apply for a Credit Builder Account. Why? Because they really don’t care how bad your credit is! The loan is locked away in a CD, so they don’t have to worry about you defaulting.
- Reports to all credit bureaus. As we mentioned before, credit builder loans help you build your score by reporting your payments to credit bureaus. Self reports your payments to all three major credit bureaus—Experian, Equifax, and TransUnion.
- Early account closure. If you need access to the money you’ve saved up in your account before the term is up, you can close your account early. Self will send your balance amount straight to your account—minus administration fees and interest.
- Access to Self Credit Card. Once you’ve accumulated at least $100 in your account, you can apply for a Self Credit Card. This is a great way to start building credit if you don’t have any other credit products.
This is a great selection of features and benefits that add a ton of value to Self’s credit building service.
Self Plans & Pricing
Self offers four different credit builder plans designed to appeal to a range of people, budgets, and needs.
Here’s a quick overview of each one:
|Plan||Monthly Payment||Payment Term||Total Payment||Total Returned||Total Cost|
|Small Builder||$25/month||24 months||$600||$520||$89|
|Medium Builder||$35/month||24 months||$840||$724||$125|
|Large Builder||$48/month||12 months||$576||$539||$46|
|X-Large Builder||$150/month||12 months||$1,800||$1,663||$146|
Self Fees and Interest
As you may have noticed, you don’t get the full loan amount back when you finish making payments on your Self Credit Builder Account. That’s because Self charges an administration fee and interest on the loan.
Administration fees are a flat $9 per account paid upfront, regardless of the plan. Interest rates are a tiny bit more complicated. Self uses a variable system, which means the interest rate you pay depends on how much money you borrow:
- The Small Builder Plan (15.92% APR)
- The Medium Builder Plan (15.97% APR)
- The Large Builder Plan (15.65% APR)
- The X-Large Builder Plan (15.91% APR)
For reference, personal loans average 9.41% APR. While it makes sense that APRs for smaller loans to people with bad are higher (since they’re riskier for lenders), Self isn’t actually taking on much risk since the money is locked away in a CD.
These fee and interest rates add up, and as we’ll discuss in the next section, they’re the only thing holding Self back from being an excellent credit building tool.
Self Penalties and Late Fees
If your payment is 15 days late or more, you will incur a 5% late fee. If your payment is 30 days late or more, you will be reported to the credit bureaus. This will damage your credit score. If the payment continues not to be made, you will eventually default on the loans, which will damage your credit score further.
Is a Self Credit Builder Loan Worth It?
The honest answer is: probably not.
Self credit builder loans are an effective way to build credit. By the time you’ve paid off your loan, you’ll definitely see an improvement in your score—provided you’ve made your payments on time and adopted good financial habits.
The problem is the price. With costs ranging from $46-$146, Self’s credit builder loans are some of the most expensive on the market. If you don’t have a lot of money to spare, there are free options available that can be just as effective.
4 Free Self Credit Builder Loan Alternatives
1. Apply for a Kickoff credit builder loan.
Kikoff is a credit builder loan provider just like Self. The difference is that Kikoff has zero fees and doesn’t charge any interest on their loans. That’s right, you get the full loan amount back at the end of your term. The company even allows you to close your account early without incurring a penalty.
2. Become an authorized user.
You can piggyback off someone else’s good credit by becoming an authorized user on their account. This is a great option if you have a friend or family member with excellent credit who is willing to help you out.
3. Get a secured credit card.
A secured credit card is another great way to build credit without paying any fees. With a secured card, you make a deposit that serves as your credit limit. So if you deposit $500, your credit limit is $500. Because the credit limit is so low, secured cards tend to have high approval rates—even for people with bad credit.
4. Dispute errors on your credit report.
One of the best ways to improve your credit score is by disputing any errors you find on your report. Credit Sesame can help you with this. These errors can range from a mistaken late payment to an account that doesn’t even belong to you.
You can learn more about disputing errors (as well as other credit repair techniques) in our DIY credit repair guide.
The Bottom Line
As a financial product, Self credit builder loans are perfectly fine. The company is legitimate and the loans can be helpful for people trying to improve their credit scores.
That said, it’s hard to wholeheartedly recommend Self’s credit builder loans when there are free alternatives available that offer the same benefit. If you’re looking to build credit, you can find better ways to do it without spending a dime.