Credit builder accounts are ideal options for people with no credit history or a very low credit score. The idea is that you “borrow” money from an FDIC bank. Since the money is in a locked savings account until you’ve made all of the payments, it’s low-risk for the bank. As a result, you don’t have to undergo a credit check and denial of the loan is unlikely.
At the same time, each payment you make is reported to the three credit bureaus. Each on-time payment helps build a credit history and boosts your credit score. So, you don’t need to have a credit history to get approved, and end up with the money to use however you wish when the last payment clears.
Two of the best credit builder accounts are managed by Credit Strong and Self (formerly Self Lender). Which is best for your needs? Compare our reviews of these credit builder accounts.
The Pros and Cons of Credit Strong
A Credit Strong Credit Builder Account has several credit builder products to choose from. A Subscribe account is good for up to $1,000 or $2,500 installment accounts with payments of $15 or $30 a month. Build & Save has plans with either 12 months or 24 months of payments for a final savings account of up to $2,000. Finally, with a MAGNUM 9000 plan, you make 120 monthly payments of $99 and end up with $9,000 after your last payment.
You choose the payment terms that fit your budget. With a Credit Strong Credit Builder Account, there are repayment terms of as long as 120 months. If you do need to cancel your credit builder account, you’re not going to be penalized. If you get a substantial raise and want to double your payments or pay it off early, that’s fine. Just be aware that you shorten the number of on-time payments being submitted to the three credit bureaus.
When you open a Credit Strong Credit Builder Account, funds go into a locked savings account. Make monthly payments online or by setting up auto-pay. Make sure you have money in your account to cover the payment or you risk being hit with insufficient funds and/or late payment fees. Keep making on-time monthly payments and your credit score increases. When the final payment is made, the account is unlocked. You can keep it with Austin Capital Bank or transfer it to your own bank or credit union.
What if you need to cancel your account? Make sure customer support knows before a payment is marked late. Once you’ve let the bank know, any balance you’ve built to that point is unlocked for you. You can use those funds for whatever you want. The bank will not tell the credit bureaus that you’ve defaulted or failed to make all of the payments.
Here is some additional information to know about a Credit Strong Credit Builder Account. Credit Strong partners with Austin Capital Bank, an FDIC member. To qualify for a credit builder product, you must be 18 years of age or older and have an ITIN or SSN. You must have a valid mobile phone or Google Voice number that’s capable of receiving SMS messages for the verification number. You need a valid email address, too. To make payments, you have to have a prepaid debit card, or a checking account.
Pros:
- No credit check is required.
- Very few applications are denied.
- You choose the payment terms that fit your needs.
- Payments are reported to all three credit bureaus.
Cons:
- Credit Strong products are not offered in North Carolina, Vermont, or Wisconsin.
- Payments that are more than 14 days late are subject to a late fee and will be reported as late to the three credit bureaus.
- You must have a Google Voice or mobile phone number with SMS capabilities.
The Pros and Cons of Self Lender
Self Credit Builder accounts tend to fall into the $300 to $1,000 range. Self Financial does have lenders who might go as high as $2,500 if needed. You choose your loan term of six months to six years. Taking longer gets more on-time payments onto your credit report, but you have to pay by the due date. If you pay late, late payments are also reported and can hurt your credit score.
When you make your last payment, the account is unlocked. The interest and fees are removed from the payments you’ve made, which leaves the amount you borrowed in that account. If your credit builder was for $1,500, you have an account with $1,500 that you can use to pay other bills, keep in that savings account, transfer to your bank, or spend on something your household needs.
Check out this example of a credit builder loan. Say you pay $25 a month for two years. After the administration fee and the applicable interest, you’d have $520 in your credit builder account. If you paid $48 for a year, you’d have $539. If something happens and you need to cancel the credit builder account, that’s fine. You’re not penalized for canceling. Just make sure you reach customer support before your payment is marked late. Any money you’ve paid to that point is credited to you after interest and fees are removed.
Here is some additional information about Self Credit Builder accounts. Self Financial is an FDIC-approved bank based in Austin, Texas. To qualify for a credit builder product, you must be 18 years of age or older. You have to have a valid debit card, bank account, or prepaid debit card. Without those, you may not be approved. If you use a debit card, be aware that there is a processing fee of up to 2.99% on each payment.
It’s very unlikely that your Self Credit Builder application will be denied. If you are denied, it’s never due to your credit history or credit score. It’s going to be you’re not at least 18 years of age, you’re not a U.S. citizen or permanent resident, you don’t have a valid bank account, prepaid card, or debit card, or you don’t have a valid SSN. You do have to call Self’s authorization department and follow the instructions to verify your identity through Experian.
If you are approved, you can pair your new credit builder account with a Self Visa Secured Card. To qualify for the secured Visa, you need to have made at least three on-time payments, have built the savings account to at least $100, and not have any missing payments. If you do all of that and are approved for the new secured credit card, you have a credit card you can use anywhere Visa is accepted.
Pros:
- No credit check is needed.
- Pairs with the Self Secured Visa Credit Card.
- Choose a payment that fits your budget.
- Cancel without penalty.
Cons:
- There is an administration fee.
- You must be a U.S. citizen with an SSN and reside in one of the 50 states.
- Debit card payments are charged a processing fee.
Both the Credit Strong Credit Builder Account and Self Credit Builder Account help build a credit history. You don’t have to worry about a credit check. You make payments you can afford and end up with money and a higher credit score at the end of your plan. It’s a win-win situation for those struggling to improve their credit history.
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