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Wells Fargo isn't closing your personal line of credit after all

After customer and consumer advocate backlash, the bank reversed its decision. Here's what that means for customers.

Wells Fargo branch
Wells Fargo

Last month, CNBC first reported that Wells Fargo was shutting down all personal lines of credit and would no longer offer the service to customers. Weeks after facing public scrutiny from customers and consumer advocates, the bank announced a reversal of its decision. 

"Based on feedback from our customers (thank you if you provided feedback!) we are adjusting our approach," John Rasmussen, an executive vice president who oversees Wells Fargo's personal lending business, wrote to active customers in an email seen by Bloomberg, the outlet reported Wednesday. "The terms of your account are not changing."

Why did Wells Fargo reverse its decision? 

Wells Fargo didn't immediately respond to CNET's request for comment. Previously, a Wells Fargo spokesperson said the bank's decision to close personal lines of credit came down to simplifying its product offerings in order to "better meet the borrowing needs of our customers through credit card and personal loan products." 

The bank has had 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 US Securities and Exchange Commission and the Justice Department, and the asset cap remains active until the compliance issues tied to the fake account scandal are completely addressed. 

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. 

Why did consumer advocates oppose credit account closures? 

In its previous statement announcing account closures, Wells Fargo acknowledged the inconvenience, "especially when customer credit may be impacted." Consumer advocates took issue with the move and its potential impact on customers' financial stability. 

"Not a single @WellsFargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence," Senator Elizabeth Warren tweeted on July 8. "Sending out a warning notice simply isn't good enough -- Wells Fargo needs to make this right."

How do revolving credit lines affect my credit score? 

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 with 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 your bank's decision to shutter your account (or not), 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 that 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. 

Originally published last month. Updated with new information.