Wells Fargo Dumps Personal Lines of Credit: Will It Affect You?

Wells Fargo announced to its customers that it has “decided to discontinue offering new Personal and Portfolio line of credit accounts and to close all existing accounts.” Closing personal line of credit accounts means customers will no longer have access to their credit lines and will have to pay off their existing balances over time.

Fallout From the Announcement

Industry analysts speculate that the move is the result of Federal Reserve oversight due to several past regulatory violations by the bank. Wells Fargo acknowledged that this move will likely impact customers’ credit scores.

“We realize change can be inconvenient, especially when customer credit may be impacted,” a Wells spokesperson stated before adding that the bank was “committed to helping each customer find a credit solution that fits their needs.”

Senator Elizabeth Warren (D., Mass.) took to Twitter to express her displeasure. Warren is the former head of the Consumer Financial Protection Bureau (CFPB). “Not a single @WellsFargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence,” she tweeted. “Sending out a warning notice simply isn’t good enough. Wells Fargo needs to make this right.”

Customers received notice that they have 60 days before their credit lines will be cut off. Borrowers will have to pay off any remaining balances with regular minimum payments. The interest rate will be fixed. Initially, the credit lines had variable interest rates between 9.5% and 21%.

How Does Closing Personal Lines of Credit Affect Credit Scores?

Closing a line of credit can impact your score negatively in several ways, depending on your circumstances and how the bank reports your account to credit bureaus.

• If your account is several years old, closing it can drop the average age of your accounts. That number impacts 15% of your credit score.
• If you are not currently using much of your Wells Fargo credit line, your low “credit utilization” probably helps your credit score. Credit utilization comprises 30% of your score. But if the account is closed, your utilization for that account shoots to 100% (your credit limit equals your existing balance). That could do substantial damage.
• If you only have a few accounts (“tradelines” in the credit reporting industry), and you close one of them, you could end up with a “thin file.” Lenders don’t like to see thin files because they don’t provide enough information about how you manage debts.

There are ways to safely close a credit line, according to Experian. If your bank forces you to close your account, you may be able to minimize the damage.

How to Minimize Credit Score Damage From a Closed Line of Credit

You can take steps to save your credit score in the next 60 days before Wells Fargo says it will terminate its personal lines of credit.

• If possible, pay off your balance before Wells can close the account.
• If you can’t pay your Wells credit line off with savings, try a personal loan with a fixed interest rate and payment. By converting a revolving account like a line of credit to an installment loan, you actually reduce your credit utilization. That might even offset any damage caused by reducing your account age.
• Another option for paying off your account before the closure is a balance transfer card with a 0% rate for up to 24 months.

In addition to credit score damage, the closing of your personal line of credit could harm your cash flow.

How to Fix Your Cash Flow if Wells Fargo Closes Your Personal Line of Credit

If you have plans for your credit line, like a home renovation already underway, protect your access to cash ASAP.

• You could draw down your personal line of credit up to its maximum to get access to all of the cash you’re entitled to before the deadline.
• You may also wish to apply for a new personal line of credit or a fixed personal loan with a different lender.
• A low-interest home equity loan can be speedily set up at low or no cost if you have sufficient home value.

If you act now, this latest action by Wells Fargo should prove to be little more than a minor setback or inconvenience. But the key is to act swiftly and not get caught unaware.