Recently, I saw several articles where Wells Fargo announced the elimination of 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 major projects like major appliances and home improvements, was used for other expenses, and provided overdraft protection. In making this announcement, Wells Fargo released a six-page letter. The letter, at least for Wells Fargo customers, only tells half the story of when your bank suddenly takes away your line of credit.
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.
The bank’s letter 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 your 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. Also, anyone who is thinking about using their line of credit to pay some or all their debt and “keep things afloat” needs to think again and find a different solution. Therefore, I suggest that you give us a call. We can help. We offer real solutions for real people – based upon your unique circumstances.