Wells Fargo announced that they were closing all personal lines of credit. For example, let us say you have a line of credit opened for $20,000 and you have borrowed $10,000. They will close down the unborrowed $10,000, and then you will be assigned a minimum fixed payment to pay down the rest of the money already borrowed against the line.
SO will this hurt credit scores? Wells said it “may” harm your credit score. All due respect to the damage control experts hired by Wells Fargo, the percentage chance of it hurting your credit score is more significant than “may,” more like probably will.
It comes down to the credit utilization ratio. This measures the total amount of credit lines issued versus how much of those credit lines are used. For example, let’s say you have five credit cards with a $10,000 open line of credit on each one for a total of $50,000 in combined lines of credit.
You have used $25,000 of those lines of credit for a credit utilization ratio of 50%. (25,000/50,000) Now let’s say that one of those five credit lines was the Wells Fargo line of credit, and you have not used it. After Wells Fargo closes it down, you have $40,000 of credit lines versus $50,000. Now your credit utilization ratio is 62.5%. (25,000/40,000)
The key is to keep the credit utilization ratio down below 30%. A rate above 30% will negatively affect your credit score.
Wells Fargo’s recent harmful actions are another example of taking risks over customer benefits. Of course, this is not as good as when they opened fake accounts in their customer’s names.
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