When years ago a personal finance crash destroyed James Garvey’s credit rating, the steps needed to restore his creditworthiness were tedious and unclear. He set out to create a simpler approach.
The Self-Credit Account Garvey launched in 2015 allows consumers to deposit $100 into a deposit account certificate to borrow, making regular repayments that are reported to Equifax, Experian and TransUnion. Two years ago, Self added a $25 per year non-reward secure Visa card for eligible credit builders, which expanded Self’s audience to 1.2 million consumers.
But this process, while useful for rebuilding credit, could have been faster with more data.
“We realized that people came to Self not because they needed money, but because they needed to generate transactions to quickly build a credit history,” Garvey said.
To accelerate the progress of its customers and differentiate itself from the many banking challengers and startups that help underbanked consumers build credit, Self bought another credit creation platform, called RentTrack, earlier this year. Now, its customers can opt to have their other bill payments, including rent and utilities, automatically reported to the credit bureaus.
RentTrack, an eight-year-old Minneapolis-based startup, was one of the first to report consumer rent payments to the three major credit bureaus. RentTrack collects data through property managers who cover 2.8 million rental units in the United States.
The deal included RentTrack’s LevelCredit operation, which allows consumers to report their own rent, cellphone and utility payments to offices.
After a recent beta test, Self rolled out the RentTrack and LevelCredit services in September for its credit and secured credit card customers. For those who opt, rent payments are reported directly to the three major credit bureaus. So far, utility and cellphone payments are only reported to TransUnion, Garvey said.
Separate subscription fees for RentTrack and LevelCredit are each $6.95 per month; Self is still testing prices.
Several other companies including Financial Esusu are building their own unique systems for consumers to add their rent payments to their credit history. But there’s plenty of room for expansion, as there are about 44 million renter households in the United States and less than 10% report rent payments to credit bureaus, according to Freddie Mac.
Customers who subscribe to Self’s extended credit building services can directly verify the bank accounts they use to pay their rent with Self. To verify the bank accounts they use to pay utility and cell phone bills, they must verify the accounts with Self’s partner, Plaid.
After rent and utility bill payment accounts are verified, which can take up to two weeks, these payments are reported to the credit bureaus within 24 hours of payment clearing.
Self handles basic processing and underwriting of its credit building accounts in-house and works with a handful of banks to hold money in CD accounts and issue loans. Sunrise Banks, Lead Bank and SouthState Bank are among its partners.
Self charges customers a one-time $9 administrative fee to set up a credit account and after six months of on-time payments, customers are screened to determine their eligibility for a self-secured Visa card.
Most Self customers who start with a credit building account choose to get the Visa card, and within a year or so many upgrade to an unsecured version of the Visa credit card with a line of credit of up to 3 $000, according to Garvey.
“Secured credit cards have a bright future in the United States, especially if the economy heads into a recession,” said Brian Riley, director of credit card consulting at Mercator Advisory Group.
A potential competitive disadvantage for Self is that many credit scoring models place more weight on a consumer’s relationship with a large national credit card issuer than with a startup or fintech, Riley said.
But Self is enjoying strong growth by targeting consumers who see its products as a quick and easy way to build their credit scores. Many increase their scores significantly within 12 months, Garvey said.
Last year, Self extended its credit building accounts to customers arriving from outside the United States on work visas or student visas.
The company recently expanded to approximately 300 employees and has raised $127 million to date in several different venture capital rounds.
“We’re accomplishing what we set out to do by simplifying a process that was previously complicated and disconnected,” Garvey said.