On a similar note...
On a similar note...
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Self — a startup based in Austin, Texas — has teamed with Missouri-based Lead Bank to offer the Self Visa credit card, a secured credit card that offers a unique path to credit.
Secured credit cards typically require a credit check and an upfront cash security deposit, which can be obstacles for those with poor or no credit history or with little access to immediate funds. The Self Visa credit card allows you to skip these steps if you open a Credit Builder Account, a secured installment loan necessary for eligibility.
It's an interesting model that can clear significant roadblocks for many, but the card has its own hurdles you'll have to clear.
How you start with Self
When you open a Credit Builder Account, there'll be no credit check, but you'll owe a one-time, non-refundable administrative fee of $15. One of Self's partnering banks issues you a small loan, but you don't receive access to the funds immediately. The bank holds on to that loan until you pay it off.
You do this via monthly installments, starting at $25 per month, depending on the loan term. Self offers one- and two-year terms, and you can see the relevant pricing information — including APRs, finance charges and the total amount of payments — using the sliding tool on Self's website.
The installments you pay accumulate in a federally insured certificate of deposit that earns interest until the term ends and the loan is paid off. Meanwhile, your payment history, which is a large factor in your credit scores, is reported to all three major credit bureaus: TransUnion, Experian and Equifax. If you decide to apply for the Self Visa credit card, your monthly Credit Builder Account loan payments will eventually act as your security deposit for the card and play a role in determining your credit limit.
How you get the credit card
You can qualify for the Self Visa credit card when you meet the following criteria:
You’ve saved $100 or more in your certificate of deposit. (This will serve as your security deposit.)
The last three monthly payments were made in full.
Your account is in good standing with no outstanding fees.
When it comes to your credit scores, another factor is your mix of accounts, and with Self you can get an installment loan and a credit card in one model.
“Our thesis is that now, with us, you have two different ways you’re building credit,” says Brett Billick, chief marketing officer at Self. “Ultimately it will help you, as a customer, show [the credit bureaus] what you can do."
As with traditional secured cards, you can get your deposit back when you close the account in good standing.
Nerd tip: You don't necessarily have to have paid off the Credit Builder Account loan to qualify for the Self Visa credit card. You need only to have saved enough in your certificate of deposit and met the card's other criteria.
Details of the Self Visa credit card
Once you've met the above criteria and are eligible to order the Self Visa credit card, here's what you can expect from it:
Annual fee: $25. The annual fee will reduce the amount of credit initially available to you. (If your initial credit limit is $100, for instance, your available credit will be only $75.)
Interest rate: 23.74% variable APR.
Credit limit: You choose the portion of your security deposit (above $100) that determines your credit limit.
Credit-reporting: A report of your credit card payments to all three credit bureaus.
Low fees: There's no penalty APR, and Self doesn't charge a late fee on your first late payment. Subsequent late payment fees are as high as $15, which is significantly lower than fees charged by other credit cards. (The highest possible late fee is capped at $39 by the Consumer Financial Protection Bureau.)
Is it right for you?
The Self Visa credit card certainly lowers some of the traditional barriers to credit card approval, especially given the lack of a credit check. And initially, it can be cost-effective, too. The finance charges you'll pay on a Credit Builder Account loan range from about $46 to $115, depending on the amount borrowed. If you add the $25 annual fee for the Self Visa, it’s initially less than you would pay for a traditional security deposit on some secured credit cards. That could be ideal if your budget, and your credit, would benefit from stretching your deposit over several payments.
But over the long term, the loan and card combined would end up costing more than an upfront security deposit. Many secured cards don't charge annual fees.
Plus, unlike those traditional secured cards, you don't get access to your funds — or your card — immediately. And while you could pay off your Credit Builder Account loan early and get your funds sooner, it may affect how much payment history you're able to establish with the credit bureaus.
Make sure you're willing to make those trade-offs first.