Wells Fargo has decided to close its entire consumer offerings of lines of credit. This includes closing down pre-existing lines of credit (not just discontinuing it for new customers).
The Scandal: Hurting Consumers
In effect, they are decreasing consumers’ credit scores, which is the real scandal.
However, you should know, Wells Fargo is no stranger to scandals.
If you recall, Wells Fargo created millions of fake accounts on behalf of their clients resulting in millions of dollars in fines and damages in the billions.
More recently, Wells Fargo agreed to pay 3 billion dollars to settle charges alleging that it engaged in fraudulent activity, including charging fees and selling products its consumer did not want and did not need.
Unsurprisingly, when your fraudulent practices are so pervasive so as to become the subject of a Harvard study in fraudulent practices, you know you’ve been at it for a while.
Ethan Wolff-Mann at Yahoo Finance did a chronological expose in Wells Fargo’s transgressions, detailing the following:
- September 2016: Fake accounts
- September 2016: Improper auto repossessions
- December 2016: Failed ‘living will’ test
- March 2017: More fake accounts
- March 2017: Failed community lending test
- April 2017: Whistleblower wins $5.4 million and job
- August 2017: Overcharging small businesses
- February 2018: Federal Reserve restricts the size
- February 2018: Sued over discrimination against black and Latino borrowers
- March 2018: Wealth management investigation
- April 2018: $1 billion settlement for mortgage locks and auto-loan issues
- May 2018: Altering business information without client knowledge
- May 2018: $480 million to settle a securities-fraud lawsuit
- June 2018: SEC fine for leading investors astray
- July 2018: Refunds over add-ons like pet insurance and legal services
- July 2018: Private Bank wealth management issues
- August 2018: Pays $2.1 billion for its role in the housing bubble
- August 2018: Foreclosures due to a computer glitch
- March 2019: Advisors sanctioned by SEC for fee-disclosure practices
Now this: Closing lines of credit and hurting credit scores.
We’ve observed over the years that the entire credit system is arbitrary. The credit scoring system is an attempt to quickly and efficiently evaluate someone’s creditworthiness, but that system absorbs many factors which have nothing to do with a consumer’s creditworthiness.
As a matter of fact, Wells Fargo’s decision to close consumer’s lines of credit is a prime example of how a consumer’s credit score can be negatively affected while having nothing to do with the consumer’s creditworthiness or willingness or ability to repay a loan.
Closing lines of credit hurts credit scores.
Everyone knows that closing a line of credit can negatively impact your credit score.
Additionally, Fair Isaac Corporation (FICO), the largest credit score provider, specifically warns against closing lines of credit.
Why? For the very reason that it could decrease your credit score.
Likewise, TransUnion, one of the “big three” credit bureaus, warns that closing an account may harm your credit score. Experian said the same. Everyone agrees.
Decreased credit scores can negatively impact financial affairs.
Bankrate outlined many ways in which a decreased credit score can negatively impact your life.
With a lower credit score:
- You will have fewer credit offerings (obviously).
- You may pay higher insurance premiums.
- Expect to pay more expensive car loans.
- Your ability to secure an apartment becomes less competitive.
- You can expect to pay higher deposits for utilities.
- Your job applications may be less favorable.
- Your ability to start a business may be disrupted or compromised.
Update: There’s a solution.
If you were negatively impacted by Wells Fargo’s decision to close your line of credit and you do not have an immediate credit-related goal, you’ll probably be just fine.
In general, you will build credit over time. Then, by the time you need credit, you will be back on your feet in terms of credit.
However, if Wells Fargo’s closures have decreased your credit score and you have a current need for your credit score, you can purchase authorized user tradelines for a temporary increase in credit score.
In fact, you should educate yourself on this matter prior to engaging in tradelines. You can read our 24-page study to learn whether you can expect positive results or not.