When a lender changes course, why should your credit score have to suffer?

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In recent weeks, customers of a certain big national bank (I won’t mention the name, but it rhymes with Shmells Shargo!) abruptly changed course, cancelling all of their personal lines of credit.

The company (ok, it’s really Wells Fargo) released a six-page letter to customers (should it really take six pages to break the news?), stating that the bank had “decided to discontinue offering new Personal and Portfolio line of credit accounts and to close all existing accounts.”

Previously one of the biggest issuers of personal loans that ranged from $3,000 to $100,000, Wells Fargo reported in their break-up letter (page five?) that the shutdowns would occur within 60 days.

After that time, existing lines of credit will be shut off and closed down, with existing customers losing access to their accounts but still expected to make at least minimum payments.

That’s an absolute bombshell in the banking world that impacts potentially millions of consumers, as if Ford said they would keep making automobiles, but they no longer would offer the 4th wheel.

Of course, many people rely on those personal lines of credit as bridge loans, to make payroll, run their businesses day-to-day, pay for emergencies, home repairs, and consolidate harmful debt.

But the other ancillary impact of the third-largest bank in America shuttering an entire loan product is the hit to existing customers’ credit scores. It’s one that Wells Fargo full well acknowledges, writing that the closure “may have an impact on your credit score.”

Talk about adding insult to injury!

For anyone who previously had a Wells Fargo Personal or Portfolio line of credit, virtually overnight they will lose an established, seasoned, and (assuming) in-good-standing account from their credit report. Furthermore, their credit utilization will suddenly be skewed, most likely causing damage to their credit score.

Even with these Wells Farce Fargo customers doing nothing wrong, their credit score could potentially take a significant hit.

Credit Utilization is the second biggest factor in the credit algorithm, accounting for 30% of your credit score. It simply measures the amount of debt you hold (your balances) versus the total available credit on all of your revolving debt. So, if you had a combined $10,000 in debt over three credit cards and a personal loan with $30,000 total available from those accounts, your Utilization would be 33%.

However, let’s say that your personal loan made up $10,000 of that total available credit. With the Wells Fargo closure, you will still owe the same balance, but the total available just fell to $20,000. Therefore, your Credit Utilization is now 50%, a marked increase that will result in a profoundly negative factor affecting your credit score.

In fact, it’s suggested that you keep a Credit Utilization ratio at or below 30% to ensure that it’s a positive factor instead of an anchor on your credit score.

These Wells Fargo personal line patrons will suddenly have a negative adjustment to their Utilization, as well as a loss of seasoned tradeline, which will surely cause a potentially big score drop for many of them.

The closure of their personal line department comes as Wells Fargo is under fire for scandal after scandal that defrauded customers, including the latest one that involved millions of fake and unapproved accounts.

Last year, Wells Fargo also ceased offering home equity lines of credit and financing to independent auto dealership.

So, if you’re a Wells Fargo customer and just got the bad news that your Personal or Profile line of credit will be cancelled, what should you do?

First off, check your credit score, as you can request it for free at annualcreditreport.com.

Next, we advise that you contact Blue Water Credit for a consultation, who can analyze the state of your credit report, identify and shortcomings, issues, or negative items, and work to address them.

Not only can Blue Water Credit dispute negative, incorrect, and outdated items on your credit report, but they now offer low-rate, low-cost personal loans to clients, potentially solving the problem by filling that void that Wells Fargo left behind.

These personal loans include a quick and easy application process, are non-collateral loans, and have a payback period of 5-7 years.

When managed correctly, a person loan can be a responsible, safe way to pay for certain items in the short-term, manage other debt, or juggle expenses without going to less-than desirable options.

Therefore, these personal loans are a vital tool that we can leverage to build a positive track record and improve a client’s score in many cases.

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For more information about personal loans or to apply, contact Blue Water Credit here.

 

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