Some Wells Fargo customers could see their credit scores drop after the bank confirmed to CNBC Thursday it is shuttering all existing personal lines of credit in the coming weeks.
The bank has sent letters to customers telling them that their existing accounts will be closed, and that the product will not be offered going forward. Customers were given a 60-day notice of the change and will be required to make regular minimum payments on any remaining balances, Wells Fargo told CNBC.
It is not clear how many customers the move will affect, and Wells Fargo did not respond to a request for comment for this story. But if you've received a letter from the bank saying your account will be terminated, here's how that might affect your credit and finances.
A personal line of credit is similar to a credit card. Users are given a credit limit, based on their credit history and income, and they can borrow up to that limit on an ongoing basis. They are often used to consolidate high-interest debt at a lower rate or pay for expensive projects like house renovations. Users pay interest on the amount of credit they are using at any one time.
Lines of credit also impact a consumer's credit score, and Wells Fargo acknowledged as much in the letter sent to customers, CNBC reported. Closing the accounts could ding customer scores, says Annie Millerbernd, personal loan expert at NerdWallet, because closing the account will affect a person's utilization rate, length of credit history and number of accounts.
The effects won't be uniform, though. "If you have a lot of open lines of credit with really high limits and you keep the balance low, it might not have much of an impact," says Millerbernd. On the other hand, if you don't have many accounts or a high utilization rate, then it will more negatively affect your score.
With that in mind, Millerbernd says it's critical for customers with a balance to pay attention to the payment plan detailed in the letter Wells Fargo is sending out.
"Make those monthly payments on time," says Millerbernd. "They're still going to get reported to the credit bureaus."
That said, Millerbernd says those actively using the line of credit can think of this as a good opportunity to find a product that might be a better fit for them.
"We don't like to see an account close, but maybe this is an opportunity for you to look at a rewards card or a personal loan with a lower rate," she says. "Go out and compare credit cards to loans, and Wells Fargo to other institutions' financial product offerings."