Building an excellent credit score allows you financial flexibility to borrow money, secure rental leases, pay lower insurance premiums, and sometimes even land a job. However, many consumers have thin credit reports or poor credit due to past mistakes.

If you have no credit or bad credit, establishing a good credit reputation can seem impossible, because no one will approve you for anything. You can use a co-signer, but that involves risk for the co-signer. You could try a secured credit card, but you have to have money for the deposit.

If this sounds like you, and you need to build or improve your credit, consider becoming a member at Self Lender. Self Lender is a free credit score monitoring system that allows their members to open a Credit Builder Account to raise their scores.

A Credit Builder Account is a low cost loan that you essentially make to yourself that allows you to build savings and your credit. Even better, Self Lender does not require a credit check. But before you open an account, here are some things you should know.

How Self Lender works

Submit your information to open a FREE account with Self Lender. Once approved, the loan amount is deposited in a certificate of deposit (CD) with the firm’s partner, Austin Capital Bank. You’ll make regular payments for a year, then get access to the money, plus interest.

Self Lender offers one-year terms and three choices of loan amounts —  $550, $1,100 or $2,200 — with monthly payments of $48.50, $97 or $194. Which should you pick? If you’re thinking of borrowing the maximum amount, you should know that it won’t build your credit any faster than the smaller amount. But, you will be able to save more money, and the payments will be reported for future lenders to see.

Here’s the Cost

You’ll pay a $12 administrative fee regardless of the amount you choose to borrow.

Over the term of a $550 loan, you’ll pay $48.50 per month at an interest rate of 10.57%. The money is deposited in a CD, where it earns 0.10% interest. That’s a total of $31.36 you’ll pay in interest, and you’ll earn a little more than 50 cents in interest on the certificate of deposit. That means you’re spending about $31, plus the $12 administrative fee, to start improving your credit rating.

When the loan is paid off, you have access to the $550 on deposit (plus the interest you earned). That could be the start of a great emergency fund, and Self Lender will encourage you to keep saving that $48.50 a month, either in a higher-yield CD or a savings account at its partner bank.

Does it work?

During the repayment period, you have access to free credit monitoring so you can track your credit score’s progress. If you want to keep an eye on your credit after the loan period, you can get your 3 bureau credit score and report information for $1 to start at IdentityIQ.

Self Lender reports your payments to the three major credit reporting agencies, so it is extremely important to pay your account on time. Any late payments will hurt the credit you are trying to build.

If you decide to close your account before it’s paid off, you can access the money in the CD, minus the amount you still owe. If you pay it in full before the term is over there will be no prepayment penalties.

How to apply for a Self Lender loan

The loan application is submitted online via Self Lender’s website. The loans are open to U.S. residents except in New York, Wisconsin, and Vermont.

To qualify, you must be at least 18 years old and have a Social Security or taxpayer-identification number. You’ll also need either a bank account or debit card, and a prepaid card is OK — a traditional bank relationship isn’t a requirement. However, you can’t have had a negative ChexSystems report, such as bounced checks or unpaid fees, in the previous 180 days.

Self Lender fees and penalties

Payments 15 days late or more incur a fee of 5% of the scheduled monthly payment. They are not reported late to the credit bureaus until they are 30 days late. If the account continues to be late, it will eventually be closed and the loan will be reported as “defaulted” on your credit reports. You get the loan deposit amount, minus the fees, and the amount you owed when the account closed. A late payment can damage your credit, and a default is even worse.

An option for building credit

Although some credit unions and community banks offer credit-builder loans, you may need to meet additional criteria, such as living in a certain geographic area or having been a member for a certain amount of time.

Using Self-Lender to build credit by saving money rather than spending it leaves you with a nest egg and a habit of putting money away for a rainy day.

That’s a smart way to start your financial life.

Ready to get started? Create your free account online at www.selflender.com.

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