Is Self a Good Credit Card for Building Credit?
Deciding if Self is right for building credit? Learn how it works, its true costs, and compare it to other effective strategies.
Self is a financial service designed to help individuals establish or rebuild their credit history. It combines credit building with savings, offering an option for those who find it challenging to access traditional credit products. Self aims to improve credit health by reporting consistent, positive financial behaviors to major credit bureaus.
How Self Works
Self’s core functionality centers around two main components: a Credit Builder Account and an optional secured credit card. The Credit Builder Account operates as an installment loan. Instead of receiving funds upfront, the loan amount is placed into an FDIC-insured Certificate of Deposit (CD) or a secured savings account held by one of Self’s partner banks. You make regular monthly payments over a set term, typically 6 to 24 months. Each on-time payment is reported to the three major credit bureaus: Experian, TransUnion, and Equifax.
This helps establish a positive payment history, a significant factor in credit scores. Once all payments are completed, the CD matures, and the accumulated funds, minus any interest and fees, are released to you.
After successfully managing the Credit Builder Account, users may become eligible for a secured credit card. To qualify, you need an active Credit Builder Account for at least three months, a minimum balance of $100 in your account savings progress, and no late payments. The savings accumulated in your Credit Builder Account can be used as the security deposit for the secured credit card. This secured card provides an additional opportunity to build credit by adding a revolving credit account to your credit profile, with payments reported to major credit bureaus.
Understanding Self Costs
Using Self involves specific fees and interest charges. For the Credit Builder Account, a one-time, non-refundable administrative fee of $9 is charged at the outset. You also pay interest on the loan amount, which varies depending on the chosen payment plan and term, ranging from 15% to 16% Annual Percentage Rate (APR). This interest is deducted from the funds you receive at the end of the loan term.
Fees are also associated with payment methods; for instance, using a debit card for monthly payments incurs a convenience fee of $0.30 plus 2.99% of the transaction amount, while payments made via bank account or prepaid card are free. If a payment is 15 days or more past its due date, a late fee of up to 5% of the scheduled monthly payment is applied. Should you decide to pay off or close the Credit Builder Account earlier, a maximum early payoff fee of $5 is incurred.
The optional secured credit card also carries its own costs. There is no annual fee for the first year, but a $25 annual fee is charged thereafter. The variable APR for purchases on the secured credit card is high, around 28% to 29%, making carrying a balance expensive.
When Self Is Most Useful
Self can be a valuable tool for individuals seeking to improve their credit. It is particularly suited for those with little to no credit history, often called a “thin file,” and for individuals with poor credit scores aiming to rebuild credit. These groups often face challenges qualifying for traditional credit products due to a lack of established credit or past financial difficulties.
The Credit Builder Account helps establish a positive payment history, the most influential factor in credit score calculations. By consistently making on-time payments, users demonstrate responsible financial behavior. The addition of a secured credit card further aids in credit building by diversifying the credit mix, introducing a revolving credit account alongside the installment loan. This dual approach can contribute to a more robust credit profile, leading to credit score improvements over time.
Exploring Other Credit Building Strategies
Beyond services like Self, several other strategies exist for building or improving credit. Secured credit cards are a common option, requiring a cash deposit that acts as the credit limit and collateral. These cards function similarly to traditional credit cards, with payment activity reported to credit bureaus, making them accessible for those with limited or poor credit. The deposit is refundable once the account is closed and the balance is paid.
Other credit builder loans are also available from various banks, credit unions, and online lenders. These loans operate on a principle similar to Self’s Credit Builder Account, where funds are held in a savings account or CD while the borrower makes installment payments. Loan amounts can range from a few hundred to a few thousand dollars, with terms between 6 and 24 months.
Becoming an authorized user on another person’s credit card account can contribute to credit building. When added, the account’s payment history and credit utilization may be reflected on your credit report, boosting your score without a direct credit application. Services like Experian Boost allow individuals to add on-time payments for utility bills, phone bills, streaming services, and rent to their Experian credit file. This free service links to bank accounts to identify and report these payments, though its impact is limited to the Experian FICO Score 8. Another option, UltraFICO, incorporates banking activity, such as checking, savings, and money market account data, to provide a more comprehensive view of financial behavior for those with limited or low credit scores.