Building Credit Doesn’t Have to Be a Catch-22

By Travis Peterson

It seems like the moment I graduated from high school, I had credit card offers arriving in the mail. They came with offers of free gifts and a promise to fulfill my every desire. One thing they didn’t come with were instructions or information about using credit responsibly.

By the time I graduated, I had over $10,000 in credit card debt and multiple maxed out cards. Top that off with an entry level wage and new student loan payments, and I was no longer able to pay all my bills and fulfill my debt. And what did I have to show for it? A cheap guitar amp and the title of “Regular” at the local Bennigan’s.

Needless to say, my credit score dropped. But I had no idea until my 1988 Ford Taurus station wagon reached its last leg and I needed a new car. I was denied a loan and introduced to my credit report. It looked fine to me, but then I was informed that a 600 was indeed NOT a good score.

Today’s Millennials are quite the opposite in their credit usage (or lack thereof). A Bizrate study found that 67% of 18-29 year olds don’t have a credit card. And it’s not just Millennials without credit. According to a study by the Consumer Financial Protection Bureau, 45 million Americans do not have a credit score.

While living with no debt seems like a great goal (and honestly, everyone should aspire to be debt free), having NO credit history can be detrimental in the long run. This can prevent someone from receiving a mortgage, car loan, personal loans, or even employment.

But how does someone with no credit or bad credit (as was my case) begin to build a good history? It seems like a catch-22: I need a loan or a credit card to build credit, but I need credit to receive a loan.

Enter the credit builder loan (CBL) like the one offered by Self Lender. This is different than a traditional loan because you do not receive the money upfront. The loan is placed in a secured CD account and you make monthly payments to pay off the loan. At the end of your term—12 months in the case of Self Lender—you have a little over $1100!

While credit builder loans have been used by credit unions and smaller banks for some time, knowledge of these loans is scarce. With Self Lender, you don’t even need to have an account with a credit union. Upon approval, a FDIC-insured CD account will automatically be created with Self Lender’s banking partner, Austin Capital Bank, and automatic payments can be made using your current bank account.

So how can a credit builder loan with Self Lender affect a credit score?

  1. No Credit Needed: You need credit for a traditional loan or credit card. Not here. No more Catch-22. Bad credit? You can apply, too. And it’s not like the used car dealership down the street that advertises, “Bad Credit? No Credit? No Problem!” then tacks on an astronomically high interest rate. Self Lender offers an $1100 loan at 12.25% total APR.

  2. Build a Good Payment History: Paying off your credit builder loan each month creates a payment history. Payments make up 35% of your credit score, and every payment is reported to all three credit bureaus.

  3. Create Credit History: Length of credit history accounts for 15% of your credit score. Building or repairing credit takes time, so be wary of anyone who promises to repair your credit quickly. At the end of your Self Lender loan term, you will have a year of credit history – a good start on your journey to good credit.

  4. Varied Credit: Creditors like to see various forms of credit, so having only credit cards may not be beneficial. If you have a credit card, this is a type of “revolving” credit. A credit builder loan is a type of “installment credit,” like a car loan or home mortgage. If you have bad credit or a short credit history, other installment loans typically won’t be approved. However, they can be with a credit builder loan.

  5. No Hard Credit Pull: One factor on a credit report is how many recent inquiries are received. Each application for a credit card or loan will result in an inquiry. But Self Lender does not do a “hard pull” on your credit, so there won’t be a hard credit inquiry to report.

But does Self Lender’s credit builder loan really help people that much? Like Levar Burton used to say, “You don’t have to take my word for it.”

Here’s what actual Self Lender customers saying?

“I was looking for a way to jump start my credit score and thanks to Self Lender I was able to go from 0 to 639 in less than 90 days! Thank you Self Lender!

– Eric S., San Francisco, CA

“I think this is an amazing opportunity for people to help rebuild credit. I have been trying to do this with a secured credit card but I think that not having access to the funds and responsibly paying and having an end site is truly helpful. […] I think when you are younger, the importance of credit is not always on your mind, but as an active adult, you learn very quickly how much you need it in our society. THANK YOU!”

– Monica L., Aurora, CO

“Self Lender is working, it started reporting to credit bureaus in 3 months. My situation was a thin file, as I have not used credit in over 25 years to keep $0 debt. Now I am wanting to take on some debt to buy another home in Florida. I would recommend Self Lender to my family, friends or business associates whom need to build or repair a credit file. Self Lender’s follow up and customer service has been excellent.”

– Bruce S., Port St Lucie, FL

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