Wells Fargo WFC,
Customers have started receiving notification of their personal line of credit accounts being closed, and the company confirmed Thursday that it will no longer offer the product. Once accounts are closed, customers will no longer be able to draw on them.
The company announced last year that it would discontinue the product, Wells Fargo spokesman Manuel Venegas said in an emailed statement. But if the impending closure of your account is news to you, it could be a nasty surprise.
Not only will the accounts be closed, but Wells Fargo has also indicated that consumer credit scores could suffer.
“We realize that change can be awkward, especially when customer credit can be affected,” Venegas said.
Here’s what you need to know if your account will be closed, how your credit might be affected, and other borrowing options to consider.
What to expect when your account is closed
Customers will receive 60 days’ notice before their account is closed, Venegas said in the release, along with the reminders leading up to it. This could be a signal that it’s time to stop making withdrawals and turn your attention to paying off.
Once the account is closed and you can no longer withdraw from it, your annual percentage rate will be frozen and this is the rate you will pay on the remaining balance, Venegas confirmed.
Revolving lines of credit, offered in amounts ranging from $ 3,000 to $ 100,000, could be used by Wells Fargo customers to consolidate high interest debt and pay for large expenses.
Don’t miss: Biden administration to write off $ 55.6 million in student debt for students scammed by their schools
He also confirmed that no other Wells Fargo products are affected and that he will continue to offer credit cards and personal loans.
How Your Credit Score Could Be Affected
The effect of a Wells Fargo line of credit depends on your unique credit profile, said Tommy Lee, senior scientist for FICO FICO,
data and credit rating company, in an emailed statement.
Several factors affect your credit score, and your available credit versus used credit has a big influence. If you have multiple open credit cards with high limits and low balances, the impact should be low. But if your other accounts have low limits and high balances, it could hurt.
“When a line of credit is closed, some of your available credit is no longer on the table,” Lee said. The lower your ratio of balances to your total credit limits, the better when it comes to your FICO score.
Read also : My husband has $ 75,000 on his credit card and plans to spend $ 8,000 on sporting events. What can I do? Am I responsible if he dies?
Closing an account also reduces the average age of your accounts and your number of accounts, both of which have less influence on your score.
How to protect your score
Pay all bills on time. Payment history is the most important factor in credit scores.
If you need to replace your line of credit, be strategic. If you’ve recently applied for credit, you might want to wait a few months, as multiple applications in a short period of time can lower scores.
Alternative borrowing options
Especially if you have a large outstanding balance on your line of credit, your debt-to-income ratio can be high, making it more difficult to qualify for other forms of credit. But once you’re ready to borrow again, credit cards and personal loans are the closest alternatives to personal lines of credit.
Credit card: A credit card is another revolving line of credit – you withdraw money by swiping the card and making monthly payments for the balance. Credit limits are lower, and credit card purchases are generally lower than what you’re used to with a personal line of credit.
A credit card may be the right choice if you:
Can avoid interest by paying the full balance every month.
Qualify for a no-interest promotion. These are often reserved for borrowers with good or excellent credit.
Need a way to pay for regular expenses, especially if your card comes with rewards for things like groceries.
Personal loans: Personal loans are the lump sum cousin of personal lines of credit. It’s best to borrow once you are sure how much you need because you can’t borrow any easier. Compare loan offers to find the lowest rate and the monthly payments that fit your budget.
A personal loan may be the right choice if you:
Qualify for a loan with a low APR and affordable payments.
You want to borrow a large amount of money to consolidate high interest debt.
Need to fund a big one-time expense, like a home improvement project. Personal loans are not designed to be taken out frequently.
May make monthly payments over the life of the loan to prevent your credit score from being affected.
Annie Millerbernd writes for NerdWallet. Email: [email protected]
Bev O’Shea writes for NerdWallet. Email: [email protected] Twitter: @BeverlyOShea.