Austin—Self Lender, a credit-building loan app, reports that it has raised $5 million in funding.
Investors include Deep Space Ventures in Dallas, Silverton Partners in Austin, Acumen Venture Partners, and Accion Venture Lab, says James Garvey, Self Lender’s founder and CEO. The company previously raised $2 million in 2015, SEC filings show.
The two-year-old startup, which is based in Austin, has created software that sets up a lending platform aimed at those with a low credit score—or no credit score at all. “One in four adults don’t have a credit score; that’s a crazy thing to think about,” Garvey says. (A 2015 report from the Consumer Financial Protection Bureau pegged the figure at one in 10 Americans without a credit history, CNBC reported. Either way, it’s a significant number.)
One of the current options for people with no or not-so-good credit is obtaining a secure credit card offered by major credit card companies. These require a person to put down a certain amount—similar to a security deposit for an apartment—which the bank holds as collateral. The deposit is usually a few hundred dollars, and the card’s credit limit is often equal to the size of the deposit. “It’s not a great product if you have to put up money up front,” Garvey argues.
Instead, Garvey says he conceived of a business that would allow someone to “make yourself a tiny loan to your future self.” The money is saved for a finite period of time, after which the account holder gains access to the principal and a tiny amount of interest, and (ideally) sees an uptick in his or her credit score.
Here’s how it works: A user pays $12 to open a Self Lender account. A bank partner places a $550 deposit—the “loan”—into an account that the person cannot access for a year, where it earns 0.1 percent interest. Over the course of the year, a user pays $48.50 per month, which factors in an interest rate of 10.57 percent. Assuming the user follows through with 12 timely payments, the bank account unlocks after a year and the person receives $550.55. The “credit builder account” ends up costing the user $43.45. Self Lender and the bank partner get portions of the $43.45. Garvey declined to specify how that sum is divided between the two.
As an account holder pays back the loan, that person can access his or her credit score via the startup’s website. Garvey says his company doesn’t guarantee results, but users often see a credit score increase of 40 points in six months. “It’s exciting to see that they come into Self Lender and they don’t have a score, and after six months they have a score and are able to get their first credit card,” Garvey says. “They really graduate and go on to the next step in their financial journey.”
Self Lender is targeting people around the age of 30 who have a debit card and typically make less than $70,000
