The credit system in America isn’t great. It’s hard for people to establish and rehabilitate their standing inside of it. Today at the Disrupt Startup Battlefield, Self Lender launched its consumer finance service to help people with limited credit history build credit, as well as assist people with weaker credit profiles boost their scores.
Self Lender takes on the problem by letting people borrow a small sum of money that is held in escrow. The debt is paid back over a period of three, six, nine or twelve months. A simple payment plan lets the user pay off the sum in a regular fashion, and the company returns nearly all the money that the user “paid off” at the end of the payment period.
In that way, users can actually use Self Lender to save. The company suggested that a user could build their credit, and accrete funds easily to cover a down payment for a car, the loan for which they would be able to qualify given their improved credit standing.
The company takes $3 per month as its fee. Users can pay back from between $25 and $250 per month over their selected payment period, making it more economical to use Self Lender if you borrow more. The scale of the impact the payment history will have on an individual’s credit score varies.
I spoke to the founding team about the product, and how long it would take to use Self Lender to effect a positive change to your credit score. The firm says six months, but, as you might expect, the longer the better.
Self Lender supports auto-pay. So for the average user, they could sign up for the service, set their payments up, and forget about the entire thing until Self Lender sends back nearly all of their money with the added sweetener of having that cash return attached to a boosted credit score.
Getting the average person to think about their credit can be tough, which could make it difficult for Self Lender to grow its user base in the short term. But the company will grow its pool of users over time, users it knows want to become financially astute. That information will be more than enticing to companies that provide traditional loans; if you lend money, wouldn’t you want to lend it to people who are likely more trustworthy than average?
It will be interesting to see how quickly Self Lender can acquire users. Is the market of people who want to build, and not abuse their credit so large?
Q & A
How do you acquire your customers?
The CEO has experience building customer bases, and also plans to partner with other groups to find people that are currently underbanked.
Have you done market research with your target customers?
Have a few beta customers so far, and response has been phenomenal. Facebook was used to acquire their first users. There is also demand for the product due to many people being crushed in the 2008 financial recession.
How far ahead do people look ahead when it comes to their coming credit needs?
There are 70 to 90 million people that have subprime credit due to lack of payment history. Those people are incentivized to use the product.
You had a slide that said 35% of your credit score is paying on time, what is the rest? Is that enough to influence your credit score?
Self Lender builds every slice of that pie. But people also need to build payment history. Also Self Lender thinks that their product is simple enough for everyone to use.
Are you causing false positives? What happens if they fail to fulfill their obligations?
Self Lender doesn’t claim that its information is predictive, other outside groups say that it is predictive.
Have you considered distributing through credit unions?
Yes.
How do you build the trust using Facebook ads, where there is a lot of predatory lending?
Partnering with banks, and will have more to announce on that next month.
Isn’t there a bit of float in the $600 over the time period?
Yes, but it’s tiny, and it complicates the value proposition.