Fostering Financial Inclusion is Trulioo’s exclusive series covering forward-thinking companies that are pushing the envelope in financial accessibility. In this series, you can expect to get a deeper look at some of the world’s leading socially responsible technology companies and learn about their initiatives in supporting those who are financially underserved.
To build credit, lend to yourself
Traditional methods of building credit can be arduous. Subprime credit scores can keep us from accessing loans for home ownership, starting a business, and even make us ineligible for employment. In the United States, approximately 14 percent of the population has no credit score whatsoever, and is labeled as “credit invisible”. As a result, these underbanked individuals will have difficulty obtaining new lines of credit. Founded in 2015, Self Lender has helped 200,000 people with low credit scores — including those who have no credit history — create a payment history and, in turn, build healthy credit scores.
Trulioo spoke to James Garvey, the CEO and founder of Self Lender. A software engineer, with a background in building enterprise marketing software, Garvey holds a degree in mathematics from the University of California, Davis.
Trulioo: Building a healthy credit score is a long and difficult process; what was the genesis of Self Lender?
James: My wife and I wanted to go on vacation and totally unplug; I made a dumb mistake and forgot to set up one of my credit cards on autopay. My credit score was rightfully damaged, but I was really frustrated and felt helpless. I didn’t know much about personal finance and wanted to understand how credit works. After doing a lot of research, what I found out, shocked me: 45 million American adults don’t have a credit score and even more people have low credit scores.
However, I discovered that some credit unions were solving the credit building problem in a unique way: you visit a credit union, make a $1,000 deposit, and then the credit union will lend you $1,000 secured by your cash collateral. It’s a novel solution, but most Americans can’t afford $400 for an emergency expense, let alone a $1,000 deposit. So, I had an idea: What if we partnered with a bank that made you a small loan that you have to save for 12 months. Basically, a loan to your future self in order to build credit and save money: Self Lender.
Trulioo: 200,000 Americans use Self Lender, and it’s only been four years since it was founded. Can you share your insights on Self Lender’s growth, particularly when it comes to customer acquisition?
James: Frank Rotman from QED Investors has famously posed the question: “If a rational consumer were armed with perfect information, would they choose my product?”
If the answer is “no” then you’re going to have an uphill battle convincing consumers to use your product. When we started building Self Lender, I wanted to make sure that we built a responsibly priced product that a rational consumer armed with perfect information would choose. Our customer acquisition has been driven by offering a good, honest product that helps consumers build credit and save money. As a result, we’ve seen a lot of early word-of-mouth referrals, which we’ve built upon with digital marketing.
Trulioo: How important is it to your team that people build credit responsibly, without shouldering the Atlas-like burden that is traditionally associated with maintaining a healthy credit score?
James: The beautiful thing about Self Lender is that it’s an on-ramp to credit. Credit comes with great responsibility, and therefore, it’s important to realize that Self Lender can help establish credit, but it’s up to the individual to be responsible for whether it’s good credit or bad credit. In other words, it’s the customer’s responsibility for following through on the payment schedule of the loan.
Self Lender is a truly a meritocratic on-ramp to credit. We offer affordable payment options (e.g. $25/month) and keep our fees responsibly priced in order to keep Self Lender accessible to a large audience.
Away with tradition, and on with technology
Trulioo: Back when you started the company in 2015, did you see flaws in the ways that traditional credit scoring was being done? Can you explain what those flaws were and how they necessitated the creation of Self Lender?
James: Whether you’re applying for a credit card or you’re renting an apartment or buying a cell phone or having your power turned on — like it or not, credit history is playing an integral role in each decision. At the end of the day, U.S. consumer credit is so interconnected that disruption in our lifetimes seems highly improbable.
Therefore, I wanted to build something that helps people within our current framework by creating an open on-ramp to the credit system.
Trulioo: Time and time again, the crux of credit puts people in tough situations. Whether someone is trying to qualify for a secured card with their own money, an unsecured card issued by a lender, or as an authorized user on someone else’s credit line — these conversations are not easy to have. What advice would you give to someone who wants to leave these traditional vetting methods and take their financial independence to the next level?
James: Everyone’s financial situation is different but if I wanted to build credit, I would do the following, in order:
- Apply for an unsecured credit card with $0 annual fee
- If rejected for #1, then ask a trusted family member or spouse to be added as an “authorized user” on an existing credit card. This person needs to be responsible and have good credit.
- If #2 isn’t an option, then consider a secured credit card. This commitment means that I’m willing to have a bank hold at least $200, but likely up to $500 for the next couple years.
- Consider Self Lender as an alternative or complement to a secured credit card.
However, it’s best for the individual to determine what’s right for his or her lifestyle.
Escaping the credit catch-22
Trulioo: Access to financial services may be commonplace for those in developed countries but the same cannot be said for developing ones. Have you considered bringing the product outside of the United States?
James: Once we saturate the U.S. market, we’ll expand worldwide to countries that have established credit reporting systems.
Trulioo: Can you tell us about a financial inclusion success story that Self Lender is particularly proud of?
James: We have so many stories, but there is one that is pretty cool:
A customer named Derrick was turned down for an auto loan due to his credit history. After using Self Lender for a year, Derrick had established credit history and saved over $1,000. Derrick then was able to get approved for an auto loan and he bought a car from Carmax.
We hear from customers using us as a stepping stone toward financing a smartphone, getting a secured credit card, getting a mortgage and more. We love hearing stories of people becoming financially empowered.
Trulioo: With the start of a new year and an ascending subscriber base, can we expect any new projects or product updates from Self Lender in 2019?
James: We’re going to deliver an exceptional customer experience to hundreds of thousands of new customers. Today, we have 31 employees based in Austin, Texas, and we’ll be 49 by the end of 2019. Scaling is hard and 2019 will be all about scaling Self Lender.