Wells Fargo isin the coming weeks and will no longer offer the product to customers. The bank previously offered revolving lines of credit of $ 3,000 to $ 100,000, which were marketed as a way for customers to finance home renovations or consolidate credit card debt. The news sparked outrage from consumers and advocates after Wells Fargo warned the change could impact customer credit scores.
Banks don’t do closings like this often, and if you’re a Wells Fargo customer with a personal line of credit, you might be wondering how the change could affect your financial health. Here are some answers.
Why is Wells Fargo closing these accounts?
“As we simplify our 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, ”a spokesperson for the bank said. in a report.
The shutdown of another financial product by Wells Fargo CEO Charles Scharf comes after a few tumultuous years of federal investigation. At the end of 2017, the Federal Reserve imposed a cap on the bank’s assets, essentially preventing it from increasing its balance sheet. The move came after an investigation found Wells Fargo employees opened checking and savings accounts without customers’ knowledge. Account holders were also forced to pay millions in credit and mortgage charges. In February 2020, the bank agreed to pay a $ 3 billion settlement to the Securities and Exchange Commission and the Department of Justice, and the asset cap remains active until compliance issues related to theare completed.
Amid the pandemic in 2020 and due to limits set by the Federal Reserve, the bank suspended new home equity lines of credit and announced that it would no longer provide auto loans to most independent car dealerships, CNBC reported.
In February of this year, the Federal Reserve approved Wells Fargo’s proposal to overhaul internal risk management and governance practices, bringing the bank closer to removing Federal Reserve sanctions. When asked if the asset cap was a factor in cutting lines of credit, a Wells Fargo representative said the two issues were unrelated.
How do I repay my remaining balance?
Wells Fargo said customers with open lines of credit will be given 60 days notice before their account is closed. The remaining balances will have a fixed interest rate attached and must meet the minimum monthly payment requirements.
How will the change affect my credit?
In its statement, Wells Fargo acknowledged the downsides of account closings, “especially where customer credit can be impacted.” Closing a credit account can hurt your credit rating 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 rate, the amount of debt you owe against your total credit limit. The lower your debt to credit ratio, the better your credit rating. 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
Total debt greater than ($ 10,000) divided by the total credit limit ($ 30,000) equals a utilization rate of 33%. Now suppose that account C is closed by the bank. When this happens, your total credit limit automatically drops to $ 20,000 and your credit utilization rate jumps to 50%.
While there is not much you can do about involuntary account closure, you can protect other items on your credit reports. According to TransUnion, one of the top three credit reporting agencies in the United States, the best way to minimize credit damage is to keep old accounts open and active to ensure that your credit term is accurately represented. . It’s also a good idea not to charge more than 35% of your total limit on each credit account.
I still need to have access to funds. What should I do?
If you’re currently relying on your Wells Fargo Line of Credit, you’re probably a little nervous about the next steps, especially if you still need quick access to cash. Although everyone’s situation is different, there are things you can do.
- A new line of credit: Many Wells Fargo competitors continue to offer personal lines of credit. When reviewing the terms, calculate the amount of accrued interest that will be added to your debt over time to determine how much you can afford to borrow. Do the math using Bankrate’s loan calculator.
- An interest-free credit card: If you can pay for your purchases fast enough, an interest-free credit card might be the best option. Most zero rate cards offer at least 12 months of their introductory rate, which means you can avoid interest entirely by paying off your balance during that time. While most retailers will accept credit, keep in mind that many contractors and laborers only accept cash. Therefore, if you are planning a renovation or paying for other home repairs, it is wise to ask what types of payment are accepted. Here are some your choice in July.
- Refinancing of collection: If you own a home, a refinancing with withdrawal will allow you to cash in the equity you have invested in your property. Unlike traditional refinancing, 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 larger amount. Once your mortgage is paid off with the funds from the new loan, you will receive a lump sum payment for the remaining amount. You can find out more about .