Your credit score is one of the most important numbers in your financial life. It can cost or save you thousands of dollars in interest and affects whether you get that awesome travel rewards credit card or the apartment you want.
Your credit score is determined by factors like payment history (paying bills on time vs. late), credit utilization (how much debt you currently hold compared to your maximum credit line) and credit history (how long your accounts have been opened).
Often a low credit score isn't the result of financial blips (like late payments or overspending) but just lack of history. This can happen for a lot of reasons such as never owning a car or opening a credit card.
You might be in your 20s or 30s and this is the first time your credit score has come into play. Totally normal — but nonetheless frustrating!
If you are just now facing the fact that your credit score is low or nonexistent, there are many things you can do to build credit.
One financial tool that helps you build credit—while also saving up some cash in the process—is Self Lender.
Build Credit Without a Credit Card
Until recently, individuals with limited or no credit histories had few options to turn to when trying to build a good credit score: it’s hard to get an unsecured credit card without an established credit history, and secured cards often require a hefty minimum deposit upfront.
But Self Lender, a credit-building loan product launched out of Austin, Texas, lets you build credit by taking out a small personal loan that you pay back to yourself monthly, with minimal interest, while your payments are monitored by the three national credit bureaus.
The tool is straightforward and easy to use. U.S. residents over the age of 18 can create an account for anywhere between $9 and $15 (the amount of your administrative fee will vary depending on the size of your loan and the length of your payment plan). To sign up online, you just need a bank account, debit card or prepaid card, and will need to provide your email, phone number, and social security number.
Unfortunately, Self Lender is currently not available to residents of New York, Vermont, and Wisconsin.
How Self Lender Helps You Build Credit
Once you have an account, you choose the amount of your loan and whether you want to pay it back over one or two years. Loans start as low as $525 ($25 a month for two years) and cap at $1700 ($150 a month for a year). You will also pay a minimal interest charge.
Self Lender then invests the amount you choose into a FDIC-insured certificate of deposit (or CD) for either 12 months or 24 months. You make a monthly payment that goes into your savings account and each payment is reported to the three national credit bureaus, TransUnion, Equifax and Experian. After your loan is paid in full, you get your money back, in addition to a little extra cash from the interest you earned on the CD—all while building your credit history.
Who Can Benefit the Most From this Financial Tool
While this can be a great financial tool for individuals with limited or bad credit history who are looking to build or repair their credit, it does not guarantee your credit score will go up. According to Self Lender reviews, many customers report credit score increases between 40-100 points, but there is no guarantee as other factors can come into play.
Self Lender also has limitations. Unlike a traditional loan, your Self Lender account does not allow you to withdraw the money until it has been paid in full.
The product also only works if you pay your monthly minimum payments on time. If you miss a payment or make a late payment, you can hurt your credit score and do more harm than good.
That being said, Self Lender is not necessarily for everyone. If you don’t trust yourself to stay on track or if you can’t set aside the amount of your minimum payment each month, then it’s better to wait until you can.
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