May 4, 2020 – Wells Fargo announced last Thursday that it will no longer be accepting applications for home equity lines of credit (HELOCs) after April 30.
Yes, the bank can close a line of credit whenever they like. Ditto for a HELOC. And it's a callable loan, which means they can tell you at any time to pay it back in full.
When a personal line of credit is closed, that chunk of available credit is lost, which could cause your overall credit utilization ratio to go up. In addition, closure of a personal line of credit decreases the number of accounts you have and could reduce the average age of your accounts.
Closing a credit card can negatively impact your credit score by reducing your average age of accounts and increasing your credit utilization ratio. Cardholders with shorter credit histories and smaller lines of credit are more likely to have a large credit score drop from closing a credit card account.
If you haven't used your line of credit, you can close it whenever you want. If you have used your line of credit, you will have to pay it off in full before you can close it.
The lender can require that you request reinstatement of your original credit line when the circumstances permitting the reduction or freeze no longer exist. In this case, the lender must tell you how to request such reinstatement.
Card issuers generally can close an account without giving you notice. You should call your card issuer to see what you can do.
Your account may be suspended. The lender may also be able to take the money you owe directly from your checking account or any other account you have at that bank or credit union. This is called “setoff.”
Depending on the current FICO scores, this action could drop your scores 50-100 points. This drop could cause a rejection for a mortgage or a much higher interest rate, costing hundreds-of-thousands of dollars over the term of the mortgage.
And you must start repaying the amount due — either the entire outstanding balance or through payments over time. If you don't repay the line of credit as agreed, your lender can foreclose on your home.
Too many late or missed payments
But if it was recent or consistent over a longer period, lenders will worry their loans won't be paid back on time or not at all. A delinquent loan sent to collections will stay on your credit report for six years and be a major contributor to denied credit.
Can my bank close my account without my permission? Yes, a bank can close your account for any reason without notice. However, you can avoid account closures by maintaining regular activity, avoiding suspicious activity, and meeting account requirements.
The right way to do debt consolidation
For Wells Fargo, the risks clearly outweighed the benefits, and they're no longer offering personal lines of credit.
Unfortunately, Wells Fargo doesn't allow customers to cancel accounts online. This is true for both deposit accounts and credit cards. In order to cancel a credit card from Wells Fargo, you should call 1-800-642-4720 to speak to a representative about closing your account.
It was just two short years ago that several major banks stopped offering HELOCs or home equity lines of credit. Wells Fargo and JP Morgan Chase were the most notable lenders who cited an uncertain economy in the early days of the Covid-19 pandemic as the rationale for hitting the pause button on home equity loans.
Potential downsides include high interest rates, late payment fees, and the potential to spend more than you can afford to repay.
The majority of creditors will sell your debt to a collection agency.” Under federal law, a credit can send your account to a collection agency after it's 31 days past due. Still, that isn't likely to happen. As Solomon says, that usually doesn't happen until about the second or third month.
After you're approved and you accept the line of credit, it generally appears on your credit reports as a new account. If you never use your available credit, or only use a small percentage of the total amount available, it may lower your credit utilization rate and improve your credit scores.
Not enough activity with your account
According to the deposit agreement accounts of major banks such as Chase, Wells Fargo and Bank of America, a bank may close your account if you maintain little to no activity and keep it at a zero balance.
Second-chance checking accounts allow those who have been denied a traditional account to open a specialized one to help them build a strong financial foundation. Financial institutions offering second-change checking accounts include Capital One, Chime, GO2bank, GTE Financial, Fifth Third, Varo and Wells Fargo.
Depending on the facts of your case, you may be able to sue your bank in small claims court. You may also be able to join a class-action lawsuit against a particular financial services company.
When an account is canceled, it decreases the amount of available credit and raises your credit utilization ratio — the amount you owe as a percentage of your total available credit. Having a high credit utilization ratio can decrease your overall credit score.
Like other financial instruments, a line of credit can be closed or terminated either at the request of the borrower or by the lender, often due to prolonged inactivity or default.
Closing an account you've had for years will have a bigger impact on your score than closing an account you've only had for a short time. Closing any account will also impact your credit utilization ratio. Any balances you have on other cards will then take up a larger portion of your available credit.