What up, what up!
Have an interesting one for you today – let me know if you’ve ever heard of such a thing :) (And you probably have, because apparently I’m the last financial blogger to write about them!)
The topic/company in the spotlight today is Self Lender who has a product called the “credit builder account.” It’s designed to help you build credit while simultaneously getting you to save money, and I’ll be honest and say I totally thought it was shady at first glance, haha… (as most “credit building” services are). But after sniffing around a bit and talking to some of my finance friends who are blogging about them and doing their own reviews of Self Lender, it actually looks like a pretty cool idea for those who need it.
So if you’re interested in a creative way to improve your credit, stick around and see what you think! If you have great credit or couldn’t care less about this topic today, check out this riveting piece on PODWOGS, MUPPIES and DINGLEDORS instead.
You can thank me later ;)
Self Lender Review: So What is Self Lender & This Credit Builder Account?
Well, Self Lender itself is a site that offers personalized credit score tracking, credit monitoring, and access to simple financial tools and resources all around helping you improve your credit, but the product they offer that’s getting all the attention is their “credit builder account.”
It was totally new to me as I’ve never heard of such a thing, but apparently it’s a type of account that’s been around for decades mostly offered by credit unions, only called names like “savings-secured installment loans” or “CD-secured installment loans.” Again none of which I was familiar with.
In a nutshell though, here’s what they are:
A CD (certificate of deposit) that you *pay into* every month until the term is up, all the while your good payment history is being recorded.
So unlike taking out a loan where you get the money up front and then you pay it back, you actually just *save* into it each month and then get it all in the end. While building up your (positive) history in the process.
Of course, if you’re not good at paying things off on time it’ll report your *bad* history too – in which case having the opposite effect, though at least you stashed some $$ in the process – but still a rather interesting avenue that I’m still trying to wrap my head around :)
Have you ever heard of this before? Building credit through saving instead of debt?
How it Works w/ Self Lender and The Numbers
Here’s the step-by-step process of setting up one of these accounts with Self Lender, along with the details so you can see exactly how it works in practice. As copied and pasted from their site:
- Our partner, Austin Capital Bank, lends $550, $1,100, or $2,200 that is held in a FDIC insured, certificate of deposit bank account (“CD account”) for 12 months. The CD earns 0.10% APY † while the loan has an interest rate of 10.57%. The total APR* is at most 14.77%.
- Pay $12 today (non-refundable administrative fee) to open the credit builder account.
- Choose the payment plan that corresponds to your loan, resulting in payments of $48.50, $97, or $194 per month for 12 months. Payment history is reported to the credit bureaus while the CD account earns interest.
- After completing the term with on-time payments, the loan is paid off, and the CD account unlocks (with the original amount you selected) plus interest**. Plus, you’ve demonstrated months of payment history to the credit bureaus!
So as you can see, it’s not free :) You pay $12 to open up the account, and then you also pay an interest rate of 10.57% up to a total APR of 14.77% max. Those number look scary (cuz they kinda are – though on the lower range of what’s “normal” for these types of accounts), and for a $1,100 loan pretty much means you end up paying about $75 at the end of the 12 months. And less if you choose the lower amount, or more if you choose the higher.
So the question to ask is,
Is it worth paying $75 to help improve your credit while also forcing you to bank $1,100? And if all you care about is the credit, should you just go for the lower amount and pay less instead?
(Btw, that ** up there in #4 basically says that the interest you’re going to earn is either $0.55 at the end of the year, $1.10 at the end of the year, or $2.20 at the end of the year – all depending on which CD amount you go for. So in other words, you’re not doing it for the interest ;))
So Who are These Accounts for?
Anyone who has bad/damaged or *no* credit whatsoever. What this is selling here is a chance to improve your credit history through an alternative way than taking on more debt. The history isn’t all that matters, but it does factor into 35% of your overall score (the biggest chunk):
(Found at MyFico.com)
It can also be good for anyone trying to force themselves to *save more* too, however, there are plenty of other (free’er) ways of doing that, so I’d stick w/ the credit reasoning first and foremost ;)
Other things to note:
- You’ll need a bank account or debit card, valid email address, residential address, phone number, social security number (SSN) and be at least 18 years of age to set up the account
- There are no hard credit pulls when you open it
- You can pay off the loan any time you want, with no extra fees (though the point is to build up payment history, so if you pay it off early you lose the full benefits. However, you will still receive the loan deposit amount plus any accrued interest, but minus any amounts due when the CD matures.)
- If you miss any payments or are late, it WILL be reported! Thereby not helping you one lick, though you’ll still receive the money you paid into it minus any amounts due…
So… Is it worth picking up one of these credit builder accounts? If you’re credit is fine and you’re awesome at saving money, no. Just keep doing what you’re doing and you probably wasted 90 seconds reading all this :) (Though still not too late to learn about DINGLEDORS!)
If you’re looking for new options – AND – you have the money to apply towards it every month (and of course trust yourself that you will), then yes – it’s worth investigating more. Which you can do so easily here: SelfLender.com
So what do you think about this? Crazy? Awesome? Dumb? Anyone already trying it out – or have in the past – and it work out well?
Improving your credit takes time, but it IS do-able… Be sure to work on it whichever way you go!!
PS: I wouldn’t be doing my job if I didn’t list the free ways you can improve your score too… Something I know not everyone knows about when first starting out:
- Keeping your debt-to-credit ratio low (i.e. no maxing out credit cards/accounts)
- Keeping your oldest accounts open (the length of credit history matters, as shown above)
- Paying down your debts vs shuffling them around!
- And by and large, just making sure your bills are being paid on time and you’re up to date on all your payments… At the end of the day lenders just want to know if you’re responsible or not when applying for credit, and there’s not one trick that will accomplish that.
[This article was sponsored by SelfLender.com and the links above are affiliate links. As with all products we feature here, always make sure to check them out further to determine if they’re a good fit for you or not. I do my best to pluck out the ones I think can be helpful, but I don’t know the ins and outs of your specific situation :)]