Self Credit Builder Account - misconceptions and personal mistakes

[Sunni]

So I recently posted a rough plan of my credit building journey into the near future, and one thing stood out to me after I looked closer.

 

Self is not as good an option as it initially seems.

 

For context, Self Financial is a credit rebuilding/building company that offers certificate of deposit loan options (Credit Builder Loans) for those with low or no credit. These 'loans' are a certificate of deposit that they open via a bank they are partnered with, and that has an interest rate, a certificate of deposit rate, and no initial payout. It is in a way a savings account that builds your overall credit age, on time payment history, and presumably account variety/credit mix (a factor that counts for 10% of the FICO score.)

 

So, where I went wrong: I was initially going on the belief that the Credit Builder account offered by Self had minimal/low fees, but after a much closer look (and an updated 'fees' page on their website that possibly did not exist when I originally signed up) I've hit a hard right on that opinion.

 

Self fees are actually quite hard-hitting, and their interest is not something to be taken lightly.

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When I first opened an account with them in December of 2022, they seemed to only offer 1 year 'loans.' This has since changed to 2 years, and in a lot of ways, this hinders your credit building journey more than it helps.

 

My initial account was 150/month for 12 months, or 1,800 at term end. Each account requires a fee of $9 to open, this is a nonrefundable (as far as I see) administration fee. On paying off your first 'loan,' the next Credit Builder account opened will only require a $5 administration fee.

 

the APRs may be slightly off, I am just calculating the results as a simple APR instead of a compounding APR

also i m bad at ze maths so if u can plz explain where i go wrong

I paid off the account in 6 months. In terms of credit score, I ended up netting myself 6 months of account age (that disappears when I pay off the loan) and 6 on time payments

In the end, I rolled 1200 over to my Self Secured credit card (which has a heavy $25 annual fee with no cash back) and received a 463.80 payout, with 0.80 worth of interest accumulated in the certificate of deposit (this may be a bit off due to paying the loan off early, or by rolling the majority of my funds into the secured card.)

Calculating the certificate of deposit rate on my (closed/paid off) previous account turns into a mess, as I had varying amounts in the actual credit builder account and most of it rolled into the Self Secured card, netting zero interest. But estimating on the 463 being in the account for one month to 2 months, the APR of the certificate of deposit appears to be around 1.03% (if the 463 was in there for 2 months) or 2.07% (if the 463 was in there for one month.)
This translates to (600-463=137) $137 worth of fees incurred in 6 months of payment, not including the admin fee of $9. This totals a .0761_ of principal interest charge incurred, or an effective 7.61% APR. Paying the loan off in 6 months decreased what can be extrapolated as the original APR, which would be a .152_ or 15.2% APR.

Removing the certificate of deposit interest lowers this net loss by a very negligible amount, at least if you are rolling your payments over into their secured credit card offer.

But even so, if you are holding the cash solely in the account, and paying for the Credit Builder on schedule, your interest incurred (and thus fees that you cannot get back) is only a 1-2% dampener on the 15% APR.

But this is an old, and quite possibly non-standard Credit Builder offer now. As the company expanded, they turned to 24 month loans to keep people paying longer (and to be fair, growing their credit history and on time payments.)

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The current stats on the fees page of the Self website are as follows:

 

they are all at 2 year terms
they all have a admin fee of $9
the various choices of monthly payments are $25, $35, $48, $150

the total payments over the term are $600, $840, $1152, $3600
the total payouts you receive at term end are $520, $724, $992, $3076 ~ this can and will change with both the amount of money you have paid in, and how many months a given sum of money remained in it (aka, was not transferred to fund their optional Self Secured credit card)

the total charges (in terms of interest incurred over the course of the loan) are $89, $125, $169, $533
the total charges (notwithstanding the admin fee) are $80, $116, $160, $524
this translates to (ratio of fees w/o admin to total payments; ratio divided by months) a simple APR/monthly APR of 13.3%/1.1%, 13.8%/1.15%, 13.8%/1.15%, 14.55%/1.21%

above could actually be half, i seem to have calculated the 2 year term limit as one year - so the APR would be 6.615%/0.55%, 6.65%/0.575%, 6.65%/0.575%, 7.27%/0.605%

 

this part confuses me.

the website adds an interest rate and APR for each loan, they are as follows; 14.14/15.92, 14.7/15.97, 14.79/15.72, 15.58/15.88

the difference between the two amounts to; 1.78, 1.27, 0.93, 0.3

this is not correlative to the calculated simple APR shown by the fee to payout ratio shown in the previous part, so idk how it relates to the charges

 

In the end, this technically means you should be prepared to lose 13.3% to 14.55% of your total loan to fees.

 

A benefit of the Credit Builder loan is the ability to self-fund a secured credit card. At 3 months of on-time payments to your Credit Builder loan and at least $100 of payment on your loan, you are offered the chance to roll over the principal of the loan towards funding the secured card. These rolled over funds will now be separate from the loan, not incurring and certificate of deposit growth, but will still count as a paid portion of your loan. So for example, you paid 450 on the 150/month loan. You will be shown as having paid 450, but will only have (450-100=350) 350 still earning the certificate of deposit interest on your loan. The fee to open the card is $25, or the first annual fee. The minimum card limit is $125, or $100 of principal and a $25 fee that (i think? based on experience) is automatically charged to the card on opening.

To be eligible for the Secured card,
Have an active Credit Builder Account for at least 3 months and have made at least 3 monthly payments on time
Have reached at least $100 savings progress in your Credit Builder Account (after interest and fees)
Have your Credit Builder Account in good standing
A permanent US residency or citizenship with a Social Security Number
Share your income and expenses
Note: meeting these minimum requirements is not a guarantee that you will be offered the credit card. However, once offered, you have a zero chance of rejection, as you meet the criteria for the card.

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If all this hassle and fees are worth the extra credit history, payments recorded, and the chance to fund a secured credit card to $3,000 with zero chance of a rejection, go for it. Otherwise, it would be wise to stay away.

 

Since this realization of the actual numbers, I would not at all recommend opening an account with Self without putting in a lot more thought and attention.

~sunni

if you find something incorrect, please do correct me.

[Goku4]

I took a Self loan for $1500 and paid it off early. There was some delay in paying it out. They say it boosted my credit.

 

I'm not sure I would use them again. I've gotten rid of every credit builder "gimmick"; and as my scores are either at, or poised to enter the 600s.. I may try disputing my only baddie... paying my balances down will increase my score.

 

Did not know they went to 24 months. My term with them was from around June 2021 to paying it early 2022.