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They say that the best way to build credit is to open a credit card, charge a small amount, and pay it off every month. But, what if you can’t even qualify for one, because your credit score is low or non-existent? That’s super frustrating, especially when you can’t rent a house, or even rent a car without decent credit.
If you want to build credit, it’s almost impossible, because you can’t get credit unless you have good credit.
Positive payment history makes up 35% of your credit score, so building good credit history is crucial if you want to fix bad credit or just have any credit at all. With a credit-building loan, you can build good credit without going into debt and you don’t have to have good credit to qualify. One way to get yourself on a path to good credit (or to build credit history) is through Self.
What is Self?
Self is a company offering small Credit Builder Loans for people who have bad credit and aren’t able to qualify for a credit card to rebuild credit. It’s also for people who are just starting out building credit and don’t want to open a credit card yet.
Basically, if your credit score is low, Self is a good option for you. They don’t turn anyone down for the loan because of their credit history, or lack thereof.*
How does Self work?
You don’t get the money right away. Instead, Self holds the money for you until you’ve paid it off in monthly payments. Self doesn’t give you the loan until you’ve paid it off. This is why you don’t need good credit to qualify.
Instead of a typical loan where you get a lump sum up front and then repay the loan over a certain period of time along with the interest, Self puts your money into a secure bank. It sits there, earning interest, until your loan is all paid off.
Think of it like a savings account that has power to build your credit.
Self can help you build your credit. Here’s how:
You’ll choose an amount to pay monthly (for example, the minimum: $25 for 24 months**). After 24 months is up, you’ll get $520 back, plus you’ll have built good credit history. (I know, 24 x $25 = $600. But they charge fees for the loan, and your loan, sitting in that CD, earns interest, so it’s complicated. More on that next.)
There’s a 15-Day grace period, so as long as you make your monthly payment before that expires, you won’t be charged a late fee. But if you’re later than 15 days, you’ll be charged 5% of your monthly loan payment.
After 24 months of making your payments on time every month, you’ll build positive credit history, because Self reports your regular monthly payment activity to the three credit bureaus (Equifax, Experian and Transunion). Note that the reverse is also true — if you’re 30 days or more late, that’ll also be reported to the credit bureaus, which will hurt your credit score, so don’t do that! If you can’t pay it anymore, then close the account and pay the $5 early withdrawal fee.
But heck, for $25 a month, all you have to do is clip some more coupons and you’re there!
How much does it cost to build credit history using Self?
When you sign up to use Self, you’ll pay a non-refundable $9 administrative fee initially and then an $80 finance charge over time. The $9 fee you need to come up with to open your account, but the $80 charge they take out of your loan over 24 months.
There’s a 15.92% APR rate which is included in your monthly payment. But there’s also a small amount of interest that your money in the CD earns.
So, when all is said and done, it costs you about $89 to build your credit and save over two years. That’s less than $4 in interest and fees per month on average, which, if you think about it, is a small price to pay for financial freedom.
Ready for your first loan or credit card? Try Fiona.
Fiona is like the Google Flights of loans, credit cards and life insurance, offering a single common application to get the right service to the right person. It takes into account your credit score and needs to get you what you need, like a micro loan to help you keep building back your credit.
Self Financial compensates us when you sign up for Self Financial using the links we provided
*DISCLAIMER: All Credit Builder Accounts made by Lead Bank, Member FDIC, Equal Housing Lender, Sunrise Banks, N.A. Member FDIC, Equal Housing Lender or Atlantic Capital Bank, N.A. Member FDIC, Equal Housing Lender. Subject to ID Verification. Individual borrowers must be a U.S. Citizen or permanent resident and at least 18 years old. Valid bank account and Social Security Number are required. All loans are subject to ID verification and consumer report review and approval. Results are not guaranteed. Improvement in your credit score is dependent on your specific situation and financial behavior. Failure to make monthly minimum payments by the payment due date each month may result in delinquent payment reporting to credit bureaus which may negatively impact your credit score. This product will not remove negative credit history from your credit report. All loans subject to approval. All Certificates of Deposit (CD) are deposited in Lead Banks, Member FDIC, Sunrise Banks, N.A., Member FDIC or Atlantic Capital Bank, N.A., Member FDIC.
The Self Visa Credit Card is issued by Lead Bank, Member FDIC, Equal Housing Lender
** DISCLAIMER: Sample product: $25 month payment, 24 month term with a $9 admin fee at a 15.92% Annual Percentage Rate. Sample product: $48 month payment, 12 month term with a $15 admin fee at a 15.65% Annual Percentage Rate. Please refer to www.self.inc/pricing for the most recent pricing options.