The Self (formerly Self Lender) credit builder loan product has been growing in popularity. Many customers find it a useful addition to their credit-building tool belt.
But not everyone has a good experience. Here’s why.
How Much Does Self Boost Your Credit?
According to Self, their customers’ credit scores increased by 32 points on average1. Self customers that started with no credit reached an average score of 670. Since Self’s loan terms are 12 or 24 months, customers see the 32 point increase within that time period.
A 32 point raise can move you from one credit score bracket to the next one.
Here’s what 32 points can do for you:
- You can move from the “Fair” bracket to the “Good” bracket.
- With Good to Excellent credit, one is expected to have an average credit card interest rate of 19.35%.
- While those with a credit score below 670 should expect an average credit card interest rate of 23.87%.
The higher your credit score, the better. The consensus is that a good credit score is 720 or higher.
It’s crucial to understand that the impact of the Self Credit Builder Account varies based on your unique credit history, whether you pay on time, and how long you keep it open.
If you make your monthly Self loan payments on time, it should bump up your credit score. If you pay late, your score will actually go down!
There are some people who report that Self caused their credit score to go down, even when they made on-time payments. We’ll dive more into that later.
How Fast Does Self Build Credit?
If you’re looking for ways to quickly boost your credit also check out our “Can You Raise Your Credit Score 100 Points Overnight?” article.
When you first sign up for Self, it usually takes the loan anywhere from 30-60 days to appear on your credit report. Many customers report an increase in their credit score within 3 months of opening the account.
Self reports once a month to the three major bureaus (Experian, Equifax, and TransUnion).
This report, which is sent to the bureaus the first week of each month, is a snapshot of your Self account from the month before.
It includes information on your Self Credit Builder Account and, if applicable, your Self Visa® Credit Card.
Here’s an example timeline for credit reporting:
- January 15th– You create your new Self Credit Builder Account and pay your administrative fee.
- 1st week of February– Self reports your newly opened Credit Builder Account to the 3 major bureaus.
- February 10th-15th– The bureaus update your credit report. (Please note that it may take bureaus a few weeks or more to update your credit report).
- February 14th– You make your 1st monthly payment to Self.
- 1st week of March– Self reports your 1st monthly payment to the three major bureaus.
- March 10th-15th– The bureaus update your credit report. (Please note that it may take bureaus a few weeks or more to update your credit report).
Building credit is not an overnight success. It doesn’t matter whether you are starting out or just trying to rebuild after past credit mistakes.
Having said that, the answer to how long it will take varies based on your unique financial situation.
As discussed earlier, how fast your credit score will rise will depend on the five credit scoring factors, such as payment history and available credit, among others.
Can Self Hurt Your Credit?
Short answer? Yes.
There are three scenarios where Self could hurt your credit:
- If you make a late payment
- If it negatively impacts your credit utilization
- After you complete the loan
The fact is that when you fail to make your monthly loan payment on time, your credit score will drop dramatically. From even one 30-day late payment.
This is a rule for any credit card, loan, or credit product, for that matter. No surprises there.
What’s more surprising is that some people have reported that their credit score went down immediately after getting a Self loan. Your credit score may drop after getting a Self loan because your credit utilization goes way up.
Many people think that only your credit cards affect your credit utilization. This is wrong. As discussed in this FICO forum thread and also this one, your credit score can take an immediate hit from getting a new installment loan, because your credit utilization on that loan is 100% at first.
To fix this, pay off 90% of the loan, so that your credit utilization is 10%. (The FICO forum gurus recommend 8.9% utilization for max credit score benefits.) Or just keep making your regular monthly payments, and your score will eventually go back up.
Finally, after you complete the loan, it gets marked as “paid” on your credit report. This means that you will lose the benefits of having an active installment loan on your credit report.
Because of this, many people see their credit score drop somewhat after getting the Self credit builder loan.
At the end of the day, keep in mind that Self is a tool. Like all tools, it works out great for many people, but not for some.
How Does Self Work?
When you get a Self credit builder loan, the money is not given to you directly. The loan amount is deposited in a certificate of deposit with one of its partner banks in your name. But you don’t get access to that money.
After that, you make monthly payments into the account. Some of your payment goes towards interest, and some of it goes towards the loan balance.
At the end of the loan period, you get back the amount that you paid in principal.
Here’s a table of the costs and fees:
Self credit builder loans benefit you in these ways:
- Anyone with no credit or bad credit can qualify. No hard credit pull or credit score is required to get started.
- A Self loan helps you grow your payment history, which is equivalent to 35% of your total credit score.
- It puts an installment loan on your credit report. This will help you qualify for a car loan or a home loan in the future.
- You build credit without getting into debt. Your payments build savings (minus fees and interest).
- You become eligible to access Self’s secured credit card. This is a great way for people with new credit to get a revolving line of credit on their credit report without spending any money upfront.
Self has two products that aim to build your credit history, namely:
- Credit Builder Account
- Self Visa Credit Card
Credit Builder Account
This is Self’s main and original product. The Credit Builder Account aims to help customers build their credit score through a small installment loan.
As described earlier, your money is placed in an FDIC-insured CD account, which you make monthly payments against.
The funds will only be available after the loan is paid off.
Self Visa® Credit Card
The Self Visa is a secured credit card, which is another great way to build credit.
A secured credit card is designed for people who can’t qualify for a normal credit card.
After your Credit Builder Account has a balance of $100 and you’ve made three on-time monthly payments, you can qualify for this secured card.
It’s a great way to boost your credit even more without having to plop down the $300+ all at once required for a normal secured credit card.
The Disadvantages of Using Self
Disadvantage 1 – Partner Banks are Confusing
As we noted in our Self Review article, some customers have complained to the BBB about having strange names appear on their credit report.
Self itself is not a lender. So it partners with banks to issue the actual loan.
Disadvantage 2 – The Terms Are Only 12 or 24 Months
If you want to maximize the amount of time that the credit builder loan is on your credit report, then a 12-24 month loan won’t do it for you.
Furthermore, length of credit history is an important credit scoring factor. If you’re focused on the long-term, then a loan with a longer term could be better for your length of credit history.
Are There Any Better Alternatives to Self?
Credit Strong also helps people build their credit.
While Credit Strong and Self both offer similar products, there are a few notable differences. (We go into much more detail in our Credit Strong vs Self article.)
Credit Strong set out to make its credit builder loan the best in the business, by offering:
- The lowest monthly payment – starting at $15, versus Self’s $25
- The longest term lengths. You can get loan terms up to 10 years.
- Credit Strong is a division of a 5-star rated bank, Austin Capital Bank. So there are no strange names on your credit report.
While these aren’t huge differences to most people, they make a difference. It does give Credit Strong the edge in features.
If you’re like most Self customers with new credit or a very thin credit profile, then Self can be a great thing for you. Look for a credit score bump of around 30 points if you make all of your payments on time.
I am a Certified Lending and Credit Specialist and first gained experience fixing my own credit. My own credit scores went from the 500s to the 800s in one year. I studied economics at The George Washington University and now have my own business working with financial technology companies. I manage my own investments and live in Salt Lake County, Utah with my wife and two kids.