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Wells Fargo recently made headlines as employees created fake checking and credit card accounts to meet enrollment quotas. Approximately 2,000,000 fake accounts were created over a four year period and approximately 565,000 of those fraudulent accounts were for Wells Fargo credit cards. Wells Fargo is still experiencing fallout from the scandal as new details continue to emerge, and, the defrauded consumers are also having to make some decisions that will preserve their credit scores.
What Happens if You Close a Fraudulent Checking or Savings Account?
Approximately 1.5 million of the 2 million fraudulent accounts were for checking. Some of these accounts might have been closed due to inactivity almost immediately after the account was opened, while others remained open for awhile. As checking accounts do not affect credit scores, most of the customers affected by the fraud probably never realized one was opened, until they pulled their credit report.
If you are one of the Wells Fargo checking account victims and want to close the fake account, the account closing will not affect your credit score at all. If you want to keep the account open, it also will not affect your credit score. The only way it can is if payment information is linked to that account and failing to update the payment information will report bad payment history to the credit bureaus.
What About Closing a Fraudulent Credit Card?
If you recently discovered that you own one of the fraudulent credit cards, deciding whether to keep or close the card can be a more difficult decision. The reason why is because the account opening slightly boosted the personal credit scores of most recipients, once the initial dip from the application inquiry disappeared.
Of the 565,000 credit card accounts opened fraudulently by Wells Fargo employees, 330,000 were closed, 192,000 were never activated, and the remaining 42,000 credit cards were activated. As these accounts were opened by Wells Fargo employees only with the intent to fill a quota, instead of planning to go on a free spending spree like a traditional identity thief, the damage could be have been worse to many credit profiles had the fraud gone undetected.
For the accounts that are still open, those customers will most likely receive a small decline in their credit score if the card is closed. Even though most of the credit cards probably have low credit limits, closing the account will increase the credit utilization ratio because the amount of total available credit has been decreased. And, if the Wells Fargo credit card also happens to be the oldest credit account you own, it can impact the credit score a few more points. But, after a few months, it should recover.
How much the score will drop closing the account will greatly vary on based on the credit profile of each customer. A person with several credit cards and an excellent credit score of at least 750 will not see much of a difference in their scores. However, somebody with little to no credit history can be greatly affected by the account closing. If the Wells Fargo credit card they unintentionally received is used properly and doesn’t have an annual fee, it might be a blessing in disguise. Unfortunately for most of the credit card recipients, the fraud caused more harm than good.
There are plenty of circumstances that when it doesn’t make sense to avoid canceling the credit card just to prevent a credit score drop. If you never intend to use the card and never look at the monthly statements to ensure no purchases have been charged to the card, keeping it open only invites fraudsters to steal your card information and leave an even more expensive mess to fix. Also, if the card charges an annual fee, you are also paying Wells Fargo a few dollars each year for a card you never originally wanted or needed.
Fraud Doesn’t Stop at Wells Fargo
With two million fake accounts that were opened over a four year time period, many might be wondering how it took so long to discover the scandal. The truth is, checking and credit card fraud happens every day. Financial institutions have safeguards in place to prevent fraudulent account openings, but, the final responsibility still falls on the individual consumer to catch any fraud before the credit card companies and bill collectors start reporting delinquent payments to the credit bureaus.
One way an individual you can monitor their account is to review their credit report from all three bureaus from annualcreditreport.com. It is free and can be done once a year. You will not be able to access your credit score for free from this site, but, inspecting your credit report for any misreported payments or fraudulent account openings are very important.
Another way to monitor your credit report for theft is to enroll in a credit monitoring service. Many banks are now partnering with a credit bureau to offer a free service, and, you can also sign-up for a free service offered by Credit Karma or Credit Sesame. Most of these services will also provide you with a free credit score that is updated monthly. These services will provide you a monthly summary stating if they recorded any new account openings in your account profile. If so, you will have the opportunity to verify the account opening is legitimate and also how it affected your credit score.
Whether you were affected by the Wells Fargo scandal or not, enrolling in a credit monitoring service is a good idea. A few years ago, these services were few and far between and often charged a small monthly subscription fee. As a result, most people only reviewed their credit report once a year for free. Better than nothing, but, identity theft happens worldwide every day of the year that can affect the credit scores of many if it isn’t caught early on.
Author: Jeff Gitlen