Wells Fargo plans to shut down all personal lines of credit

Wells Fargo is eliminating all personal lines of credit in the next couple of weeks, according to a customer letter reviewed by CNBC.

The credit lines, which generally run between $3,000 and $100,000, were marketed as a way for consumers to consolidate high interest credit card debt, pay for home improvements or avoid overdraft fees on checking accounts that were linked to the credit lines.

Consumers who have outstanding balances will have to make required minimum payments, the six-page letter said, and the bank will no longer offer new credit lines.

Importantly, Wells Fargo noted in the letter, the account closures may have an impact on consumer credit scores.

Wells Fargo told NJ Advance Media it was simplifying its product offerings.

"We made the decision last year to no longer offer personal lines of credit as we feel we can better meet the borrowing needs of our customers through credit card and personal loan products," spokesman James Baum said. "We realize change can be inconvenient, especially when customer credit may be impacted."

"We are providing a 60-day notice period with a series of reminders before closure, and are committed to helping each customer find a credit solution that fits their needs," he said.

The potential repercussions on a consumer's credit score are not insignificant. That's because lines of credit are part of a credit score calculation called the credit utilization ratio. It compares the amount of a consumer's available credit with outstanding balances. When the amount of available credit goes down compared to the balances owed, it means a consumer is using more of their available credit — a negative for credit scores.

For example, if you have $30,000 of available credit with balances of $10,000, you're using a third of your available credit.

But if part of your credit includes a $10,000 credit line, and that line is closed, you will now be using 50% of your available credit, something that looks less attractive to lenders.

If you have a Wells Fargo credit line with a balance and you don't want the account closure to hurt your credit score, consider paying off the balance as soon as you can. If you're unable to, consider opening a new account with an available balance that's the same as the one being closed to avoid changes in your credit utilization ratio. Just don't build a new balance on the new account, otherwise you'll undo the benefits of a higher credit limit to your credit score.

While Wells Fargo didn't specifically say why it was getting out of the personal credit line business, CNBC said the bank was stepping back from some financial products because of Federal Reserve limitations that were imposed in 2018 after the Wells Fargo fake accounts scandal.

Last year, Wells Fargo stopped writing new home equity lines of credit, CNBC said.

Karin Price Mueller may be reached at KPriceMueller@NJAdvanceMedia.com.