I recently saw several articles reporting that Wells Fargo is eliminating personal lines of credit. According to the reports, the elimination of these lines of credit will be final over the next few weeks. Wells Fargo customers rely on these lines, in the $3,000 – $100,000 range, to consolidate higher interest debt like credit cards, pay for expensive projects like major appliances and home improvements, and provide overdraft protection.
Why is Wells Fargo doing this?
According to CNBC, Wells Fargo is stepping back from some financial products because of Federal Reserve limitations that were imposed in 2018 after the Wells Fargo fake accounts scandal. CNBC also said that Wells Fargo stopped writing new home equity lines of credit last year.
In a letter to its customers, the bank says, Wells Fargo recently reviewed its product offerings and decided to discontinue offering new Personal and Portfolio line of credit accounts and close all existing accounts. The move would let the bank focus on credit cards and personal loans.
What does it mean?
Practically speaking, this causes an inconvenience to customers. For example, their accounts will be closed in 60 days which will cause some to scramble to find other credit solutions. And those with balances will have to make minimum payments.
Besides inconvenience, this move by Wells Fargo can have a significant impact of people’s credit scores. There are several factors that determine a credit score. These factors include payment history, outstanding balances, length of credit history, new credit, and your credit mix. When looking at outstanding balances, there is a concept of credit utilization. In simple terms, this is the amount of credit that you are using compared to your total credit limit. So, when your Wells Fargo account gets closed, you are now using a higher percentage of your available credit. Thus, creating a negative hit on your credit score.
What should you do?
The most obvious thing you could do is to completely pay off the line of credit. However, most people do not have the money to do this. Have you been impacted because Wells Fargo is eliminating personal lines of credit? If so, please call me so we can figure out a solution for you.