Self Lender Dropped My Credit Score: What Should I Do?

You have committed to improving your bad credit by opening a Self (formerly Self Lender) credit builder account and are excited to see your credit score begin to rise. But the first time you check your credit score, you find out that it has actually decreased.

Wait, what happened here?

While a credit builder loan like the one Self offers is designed to help you improve your credit, opening the account can actually drop your score, thanks to impacts on your average age of accounts, credit utilization, and payment history.

The good news? Drops to your credit score that result from opening a Self credit builder account are usually temporary.                 

Why a Self Credit Builder Loan Could Have Dropped Your Credit Score        

It may seem illogical, but opening a Self credit builder account can actually drop your credit score. Why this happens and how much your credit score will drop, depends on your unique financial situation.

The good news is that most of the reasons why your credit score may drop are temporary. For instance, opening a new credit account almost always drops your credit score as it shortens your average age of accounts.

Unless this is your first-ever credit line, which means your score can only go up.  

The unfortunate fact is that each person’s credit score is made up of various factors which are all weighted differently. This is why some people may see a huge dip in their credit score when opening an account with Self, and others only ever see their credit score rise.

To better understand the negative impact having a credit builder account can have on your FICO score, let’s explore 5 of the most common reasons for a credit score decrease.

New Credit        

A small part of each person’s credit score is built by factoring in new credit. New credit in the FICO scoring model is defined as a hard inquiry, otherwise known as a hard pull.

If you have no recent hard credit inquiries (within the last 2 years), then the new credit part of your score is at its highest. The more new credit lines you apply for (not necessarily open), the lower this portion of your score will be.

The good news here is that Self does not perform a hard pull on your credit for the credit builder loan or their secured credit card. So opening a new account from Self will never ding the new credit part of your score.

Where this new credit can impact your score is with your length of credit history.

Length of credit history looks at the age of all your credit accounts. How old is your oldest account? How young is your newest account? And most importantly, what is the average age of all of these accounts put together?

So, each time you open a new credit line, you are potentially damaging the length of credit history portion of your score. And the only fix for this is to be patient and wait for your new accounts to age.

Increase in Credit Utilization                

How much debt do you currently have? The answer is the first part of what makes up the amounts owed portion of your score.

Now, how many dollars worth of available credit, or total credit limits, do you have? This number is the second part of the amounts owed portion of your score.

The credit builder loan offered by Self reports as an installment loan. So the total value of the loan you took out is used as a sort of credit limit while the amount you still owe on the personal loan is reported as your usage.

The higher the balance on your loan, the worse it is for your credit score. But, each month you make payments, your outstanding balance will go down and your score will begin to increase.

Utilization on credit cards, or revolving accounts, is calculated a little differently. Here, the credit card balance for all of your cards is combined and compared to the sum of all the credit limits on each of your credit cards. This results in your credit utilization rate.

The higher your credit card debt, the higher your utilization rate will be, and the lower your score. This is something to keep in mind with the Self Visa secured credit card. To make the best use of the card for improving your credit, you’ll want to keep the reporting balance low.  

You Paid off the Loan and It Becomes a Closed Account)        

When you pay off the loan, it can feel like a grand achievement. Until you do a credit check and find your score has dropped. Wait, what?

Paying off your credit builder loan is good in that it shows a bank that you can manage your debt well, but it can temporarily decrease your score, particularly if it is the only installment loan you have on your credit profile.

This is related to the credit mix portion of your credit score. Having just one type of credit, i.e. revolving debt is considered a bad credit mix while having a healthy credit mix of revolving debt and installment loans is good for your credit score.

Your score can also get dinged if the now-closed loan was the only account you had with a low balance. If all of your remaining accounts have a high credit utilization rate or high balance, the amounts owed portion of your credit will take a hit.

It is important to note that closing the credit builder account does not remove it from your credit report or end its impact on your credit rating. The payment history you established with the loan (good or bad) will remain on your credit report well after the account is closed.

You Missed a Payment                

A missed payment is the single worst thing that you can do for your score. The biggest factor in your credit score is your payment history.

If you are only a day or two late, you may be able to salvage the situation before it impacts your credit score. But once you are 30 days late, it gets reported to the credit bureaus as a late payment. And even one late payment like this can ding your credit score significantly.

Just how many points you will lose depends on how many other open accounts you have and what the payment history looks like on those.

Ignoring the problem won’t make it go away either, as there are bigger dips to your score when the payment becomes 60 days or 90 days late.

When you open a credit builder loan, you are committing to improving your score.

If your circumstances change and your ability to pay on the account is diminished, it would be better for your score if you contacted Self a