Well if you haven’t heard Wells Fargo Bank as of July 9 has shut down all of their customers’ personal lines of credit (not to be confused with revolving accounts and or credit card) but they did it without notice.
Wow, what a difference a day makes and what a way to start that day, for there are many account holders carrying credit lines up to $100,000. They shut them down but the account holders will still have to pay. There is no discount and no forgiveness. What will happen is Wells Fargo Bank will more than likely take the balance due and amortize it over a period of time until paid in full. There will be absolutely no use of the credit for you, unless Wells Fargo Bank flips the account to a revolving credit card account — now that’s an option.
The personal credit lines, according to Wells Fargo Bank, will be a permanent closer and there is nothing that you can do about it. This account closure I am sure has affected the small business owner who depended upon the line of credit to assist with their business operation. This is a domino effect, because the other issue here is not just the fact that Wells Fargo pulled the plug, they pulled the rug from under your feet causing their credit line account customers to trip and fall over their own credit report. This is what I call “cause and effect.”
For anyone that has received this information, whether directly affected by it or not, we all agree that this is not a good thing.
I can state that there is a lesson here, and we must use it as a teaching moment.
Consumers may not know or understand it, but when an account is closed — whether voluntarily or by force — and it is reported to the credit reporting agencies like TransUnion, Equifax, Experian, FICO etc., and it causes a huge drop in your credit score. So, regardless of your credit line amount, whether $5,000 or $100,000, you will take a hit on your credit report.
It doesn’t seem fair, but that is the credit game. Your scores could be reduced up to, or over 100 points.
Let’s look at it this way: you are in the process of buying a home with a credit score of 680 and this is good, and the higher the score the better, but let’s just use this for example.
Before the closing of your home loan, the lender will pull a final credit report, and this is fact. We sometimes call it a soft pull, but nevertheless, it is done to ensure you have not opened any new accounts, or borrowed any money to make this purchase, or opened other mortgages while you were going through the process. When this is done and the lender sees a dropped score from 680 to possibly 580-630, your real estate purchase is shot. It is either rescinded, denied or the rate will more than likely go up, and we all know: the higher the rate the higher the mortgage payment, the lower the rate the lower the payment.
So even if your score is 800 or better you are not exempt. You will also take a hit and the same principle applies.
How do you combat it or overcome it?
1. Make sure that all of your revolving credit accounts are paid before the due date to ensure the due date cutoff is met.
2. Keep your balance on your revolving credit account to always reflect 20% or below the limit. In other words, if your credit limit is $2,000 your statement balance should never be more than $400.
3. If you’re in position, pay the statement balance in full each month and pay it before the due date.
4. Pay your statement balance in two installments before the due date. This reduces the interest being charged and the reflection of the lower balance increases your credit score.
5. Keep your credit cards revolving. Use them even if it’s for as little of a purchase as $25, because revolving accounts control your credit report. If credit accounts sit dormant for too long, credit issuers can and will shut it down, causing your credit score to drop. And as you can see with Wells Fargo’s credit line cut, you do not want that.
6. Become an authorized user on a revolving account, which is a credit card of a family member, best friend or significant other. If they have a credit account with a high limit and low balance, get added to that account because when their account is reported to the credit bureaus, it will also report on your credit report.
7. Do not open new credit cards accounts right away. The new inquiry may cause a negative hit, and the new account will possibly cause a negative hit for at least 60 days until it catches up.
8. Wells Fargo Personal Credit Line account holders: Ask Wells Fargo Bank to switch the personal credit line to a revolving credit card account.
9. Do not close accounts, no matter what ... that would hurt.
10. Get set up with a reputable credit monitoring service to keep abreast of any changes on your report, that way you can address them immediately. I personally use TransUnion as I find it to be more accurate than others.
11. Lock it up. Putting a lock on your report keeps unwanted, unauthorized inquiries and credit hackers away.
So, my friends, all is not lost. Let’s be proactive and take the necessary steps to keep your balances low and your credit scores high.
Dianne Jennings is owner and CEO of Global Mortgage Strategies Inc. in Covington. She may be reached at email@example.com.