Wells Fargo isin the coming weeks and will no longer offer the product to customers. The bank previously offered revolving credit lines from $3,000 to $100,000, which were marketed as a way for customers to finance home renovations or consolidate credit card debts. The news sparked outrage among consumers and advocates after Wells Fargo warned that the change could impact customers' credit scores.
Banks don't often conduct closures like this, and if you're a Wells Fargo customer with a personal line of credit, you may be wondering how the change could impact your financial health. Here are a few answers.
Why is Wells Fargo shuttering these accounts?
"As we simplify our product offerings, we made the decision last year to no longer offer personal lines of credit as we feel we can better meet the borrowing needs of our customers through credit card and personal loan products," a spokesperson for the bank said in a statement.
The shuttering of another financial product by Wells Fargo CEO Charles Scharf comes after a tumultuous few years of federal investigation. In late 2017, the Federal Reserve imposed a cap on the bank's assets -- essentially preventing it from growing its balance sheet. The move came after an investigation revealed that Wells Fargo employees had opened checking and savings accounts without customers' knowledge. Account-holders were also forced to pay millions in credit and mortgage fees. In February 2020, the bank agreed to pay a $3 billion settlement to the Securities and Exchange Commission and the Justice Department, and the asset cap remains active until repairs to the compliance issues tied to theare completed.
Amid the pandemic in 2020 and due to limitations set by the Federal Reserve, the bank halted new home equity lines of credit and announced it would no longer provide auto loans to most independent car dealerships, CNBC reported.
In February this year, the Federal Reserve approved Wells Fargo's proposal to overhaul internal risk management and governance practices, moving the bank one step closer to removing Federal Reserve sanctions. When asked whether the asset cap was a factor in no longer offering lines of credit, a Wells Fargo representative said the two issues were not related.
How do I repay my remaining balance?
Wells Fargo said that customers with open lines of credit would receive a 60-day notice before their account closures. The remaining balances will have a fixed interest rate attached and must meet monthly minimum payment requirements.
How will the change affect my credit?
In its statement, Wells Fargo acknowledged the inconvenience of account closures, "especially when customer credit may be impacted." Closing a credit account can hurt your credit scores by affecting the length of your credit history, especially if the account has been open for several years. It can also affect your credit utilization ratio, the amount of debt you owe compared to your total credit limit. The lower your debt-to-credit ratio, the better your credit score. For example, let's say you have three credit accounts:
- Account A: $5,000 balance, $10,000 limit
- Account B: $2,000 balance, $10,000 limit
- Account C: $3,000 balance, $10,000 limit
The total debt above ($10,000) divided into the total credit limit ($30,000) equals a utilization ratio of 33%. Now let's assume that Account C is closed by the bank. When this occurs, your total credit limit automatically decreases to $20,000, and your credit utilization ratio climbs to 50%.
While there isn't much you can do about involuntary account closure, you can safeguard other items on your credit reports. According to TransUnion, one of the three major US credit reporting agencies, the best way to minimize credit damage is to keep older accounts open and active to ensure your credit length is accurately represented. It's also a good idea to charge no more than 35% of your total limit on each credit account.
I still need access to funds. What should I do?
If you currently rely on your Wells Fargo line of credit, you're probably a bit nervous about the next steps, especially if you still need quick access to cash. While every person's situation is different, there are a few things you can do.
- A new line of credit: There are plenty of Wells Fargo competitors that continue to offer personal lines of credit. When reviewing the terms, calculate how much accruing interest will add to your debt over time to determine how much you can afford to borrow. Do the math using Bankrate's loan calculator.
- A zero-interest credit card: If you can pay off your purchases reasonably quickly, a zero-interest credit card might be the best option. Most zero-interest cards offer at least 12 months of their introductory rate, which means you can avoid interest altogether by paying off your balance during that time frame. While most retailers accept credit, keep in mind that many contractors and laborers only accept cash, so if you are planning a remodel or paying for other home repairs, it's wise to ask what payment types are accepted. Here are a few to choose from in July.
- Cash-out refinance: If you're a homeowner, a cash-out refinance will allow you to cash in on the equity you've invested in your property. Unlike a traditional refinance, which replaces your mortgage with a loan for the same amount at a lower interest rate, a cash-out refinance pays off your mortgage and replaces it with a new loan for a greater amount. Once your mortgage loan is paid with funds from the new loan, you'll receive a lump-sum payment for the remaining amount. You can learn more about .