Wells Fargo is eliminating all personal lines of credit over the next two weeks, according to a letter to a customer reviewed by CNBC.
Lines of credit, which generally run between $ 3,000 and $ 100,000, have been marketed as a way for consumers to consolidate high interest credit card debt, pay for home renovations or avoid overdraft fees on current accounts linked to lines of credit.
Consumers who have unpaid balances will have to make the minimum required payments, the six-page letter says, and the bank will no longer offer new lines of credit.
Importantly, Wells Fargo noted in the letter that account closures could impact consumer credit ratings.
Wells fargo told NJ Advance Media it was simplifying its product offerings.
“We made the decision last year to no longer offer personal lines of credit because we believe we can better meet the borrowing needs of our customers through credit cards and personal loan products,” said the spokesperson James Baum. âWe realize that change can be awkward, especially when customer credit can be affected. “
âWe provide 60 days’ notice with a series of reminders before closing, and we are committed to helping every customer find a credit solution that matches their needs,â he said.
The potential repercussions on a consumer’s credit rating are not negligible. This is because lines of credit are part of a credit score calculation called the credit utilization rate. It compares the amount of credit available to a consumer with the outstanding balances. When the amount of available credit decreases relative to the balances owed, it means that a consumer is using more of their available credit, which is negative for credit scores.
For example, if you have $ 30,000 of available credit with balances of $ 10,000, you are using up one-third of your available credit.
But if part of your credit includes a $ 10,000 line of credit and that line is closed, you will now be using 50% of your available credit, which seems less attractive to lenders.
If you have a Wells Fargo line of credit with a balance and you don’t want closing the account to hurt your credit score, consider paying off the balance as soon as possible. If you are unsuccessful, consider opening a new account with the same available balance as the one being closed to avoid changes in your credit utilization rate. Just don’t create a new balance on the new account, or you’ll negate the benefits of a higher credit limit for your credit score.
Although Wells Fargo did not specifically explain why it was pulling out of the personal line of credit business, CNBC said the bank was pulling out of certain financial products due to Federal Reserve limitations imposed in 2018 after Wells Fargo. fake accounts scandal.
Last year, Wells Fargo stopped writing new home equity lines of credit, CNBC said.
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Karin Price Mueller can be contacted at [email protected].