Wells Fargo announced in July that it was shuttering all personal lines of credit.
This week, CNBC reported that the mammoth bank has partially reversed that decision.
According to the report, Wells Fargo will now “keep the credit lines available for those who actively used them or want to reactivate old ones.” New customers won’t be allowed to open lines of credit moving forward.
Wells Fargo’s Decision Is Good News for Consumer Credit Scores
One of the major criticisms of the initial announcement involved credit scores.
According to MyFICO.com, “amounts owed” makes up 30% of your credit score, the second-most important factor.
Ideally, consumers want to keep the amount of their available credit they’re using at less than 10%. In other words, if you have $100,000 in credit, the optimal amount of credit you’ve spent and now owe would be less than $10,000.
If half your credit came through Wells Fargo, and then the bank closed down your credit, you’d suddenly be using $10,000 out of $50,000 in available credit. That could be detrimental to your credit score.
Wells Fargo closing a line of credit also could impact the “length of credit history,” which is another factor in your credit score.
CNBC reported that Wells Fargo considered credit score concerns as well as input from a number of customers who asked to keep their lines of credit open “to avoid inconvenience.”
The report also indicated that 40% of customers with a Wells Fargo line of credit hadn’t used the product in the last year. Those customers may need to become active in order to maintain their lines of credit.
Money expert Clark Howard often critiques the “Big Four” in American banking, which includes Wells Fargo, Bank of America, Citi and Chase.
Clark prefers credit unions or online banks. He says that those banks charge fewer predatory fees, which can be like death by 1,000 papercuts to your wallet over a long period of time.
He also says that those types of banks tend to be more interested in serving you as a customer rather than using you for liquidity on their loans, where they make most of their profits. They also provide much better interest rates.
