Wells Fargo Ends Personal Lines of Credit: What It Means for Consumers
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[Update Aug. 19, 2021: After receiving feedback from customers about its plan to close personal lines of credit, Wells Fargo reversed course and will now leave existing credit lines open. The information below on how to protect your credit score and alternative borrowing options is still relevant.]
Wells Fargo customers have begun receiving notification that their personal line of credit accounts will close, and the company confirmed Thursday that it will no longer offer the product. Once the accounts are closed, customers will no longer be able to draw from them.
The company announced that it would discontinue the product last year, said Wells Fargo spokesperson Manuel Venegas in an emailed statement. But if the looming closure of your account is news to you, it may be an unwelcome surprise.
Not only will the accounts close, but Wells Fargo also indicated consumers’ credit scores may take a hit as a result.
“We realize change can be inconvenient, especially when customer credit may be impacted,” Venegas said.
Here’s what you need to know if your account will be closed, how your credit may be affected and other borrowing options to consider.
What to expect when your account is closed
Customers will receive 60 days’ notice ahead of their account closure, Venegas said in the statement, along with reminders leading up to it. This could be a signal that it’s time to stop making withdrawals and turn your attention to repayment.
Once the account is closed and you can no longer draw from it, your annual percentage rate will be frozen and that’s the rate you’ll pay on the remaining balance, Venegas confirmed.
The revolving lines of credit, offered in amounts from $3,000 to $100,000, could be used by Wells Fargo customers to consolidate high-interest debt and pay for large expenses.
He also confirmed that no other Wells Fargo products are affected, and it will continue to offer credit cards and personal loans.
How your credit score could be affected
The effect of a Wells Fargo line of credit depends on your unique credit profile, said Tommy Lee, principal scientist for the FICO data and credit scoring company, in an emailed statement.
Several factors affect your credit score, and your available credit compared to credit used has a big influence. If you have multiple open credit cards with high limits and low balances, then the impact should be low. But if your other accounts have low limits and high balances, it could hurt.
“When a line of credit is closed, some of your available credit is off the table,” Lee said. "The lower your ratio of balances to your total credit limits, the better with respect to your FICO score.”
Closing an account also reduces your average age of accounts and your number of accounts, both of which have a smaller influence on your score.
How to protect your score
Pay all bills on time. Payment history is the largest factor in credit scores.
If you need to replace your line of credit, be strategic. If you’ve applied for credit recently, you may want to wait a few months because multiple applications in a short time can lower scores.
Keep an eye on your credit reports to be sure the Wells Fargo change is being reported correctly. You have free, weekly access to your credit reports by using annualcreditreport.com.
Alternative borrowing options
Especially if you have a large outstanding balance on the line of credit, your debt-to-income ratio may be high, making it more difficult to qualify for other forms of credit. But once you’re ready to borrow again, credit cards and personal loans are the closest alternatives to personal lines of credit.
Here’s how to compare credit cards and personal loans.
Credit cards: A credit card is another revolving credit line — you draw money by swiping the card and make monthly payments toward the balance. Credit limits are lower and purchases on credit cards are usually smaller than what you’re used to on a personal line of credit.
A credit card may be the right choice if you:
Can avoid interest by paying the full balance each month.
Qualify for an interest-free promotion. These are often reserved for borrowers with good or excellent credit.
Need a way to pay regular expenses, especially if your card comes with rewards for things like groceries.
Personal loans: Personal loans are the lump-sum cousin of personal lines of credit. It’s best to borrow once you’re sure of the amount you need because you can’t easily borrow more. Compare loan offers to find the lowest rate and monthly payments that fit your budget.
A personal loan may be the right choice if you:
Qualify for a loan with a low APR and affordable payments.
Want to borrow a large amount of money to consolidate high-interest debts.
Need to finance a large, one-time expense, like a home improvement project. Personal loans aren’t designed to be taken out frequently.
Can make monthly payments over the loan term to avoid a hit to your credit score.