In a move that surely will make a negative impact on the credit score of some of its customers, Wells Fargo announced Wednesday that it will no longer offer personal lines of credit.
In what CNBC reports as a six-page letter to Wells Fargo customers, the financial services company said it has “decided to discontinue offering new Personal and Portfolio line of credit accounts and to close all existing accounts.”
Wells Fargo Is Shutting Down All Existing Personal Lines of Credit
Wells Fargo had previously offered revolving credit lines, typically between $3,000 and $100,000. According to reports, the letter gives customers 60 days’ notice.
In a statement, Wells Fargo says those customers will no longer have access to that line of credit once the 60-day period ends, although they’ll need to make regular minimum payments on their balances.
In the letter, Wells Fargo told its customers that the closures “may have an impact on your credit score.” That will almost certainly be true for some people.
“Amounts owed” makes up 30% of your credit score, according to MyFICO.com, and it’s the second-most important factor. It’s calculated as a percentage: the amount you owe divided by the total amount of credit you have available. Keeping that number below 10% is ideal (for example, using $1,000 or less if you have $10,000 of credit).
If someone is losing a significant amount of available credit due to Wells Fargo’s decision, it probably will impact their credit score negatively. Closing sources of available credit can also negatively impact “length of credit history,” another factor used to calculate credit scores.
Money expert Clark Howard is on record with his extreme displeasure with the “Big Four” in American banking: Wells Fargo, Bank of America, Chase and Citi.
He thinks that these banks prey on customers through fees and are disinterested in the banking side of their businesses, which are necessary evils for more profitable credit card and personal loans.
“I see no reason for anybody at any time to ever do banking with any of those four under any circumstances,” Clark says.
This latest move by Wells Fargo comes amid bigger controversy. For the last three years, the financial giant has been prohibited by the U.S. Federal Reserve from expanding its balance while it works on fixing compliance issues that surfaced during a scandal related to opening fake accounts.
Just last year, the bank stopped offering home equity lines of credit and stopped making loans to independent car dealerships.
It’s unclear whether these actions by Wells Fargo are related to the asset cap imposed by the Fed. The bank could be trying to mitigate risk with Treasury yields declining and anxiety by some that the Fed will issue a rate hike before the end of next year.