Consumers may be left wondering what will become of their store credit cards amid what many are terming the retail apocalypse. Most often these closed-loop cards work only at specific retailers; typically issued by finance companies and underwritten by banks.
In some cases, you’ll be able to keep using it
Consumers frequently assume that when a store closes, its credit card will automatically become inactive and no further payments must be made on any outstanding balances. Unfortunately, this isn’t always the case as debt on retail cards tends to be held by their finance company rather than directly by retailers themselves – meaning you could receive communication from your card issuer regarding where payments should be sent in case the retailer goes under.
Depending on the retailer and bank that issue its cards, you could receive either an updated version of your store card or be encouraged to apply for another card with another provider. In some instances, rewards might still be redeemable before closing but not others; still others might still allow use through their website or affiliated stores that remain open.
Credit cards don’t close by themselves; as long as there is a balance outstanding, interest will continue to accrue until it is paid off. Therefore, making timely payments and keeping balances low are critical components to successfully closing accounts without suffering significant negative repercussions to your score.
Therefore, it’s best to pay off your credit card balance in full when the store you have it with closes. Otherwise, the debt could still be sold off to collection agencies – potentially having serious repercussions for both you and your credit rating if reported to multiple credit bureaus.
If you have multiple cards that have been open for an extended period, it’s essential to monitor your credit utilization rate. This ratio measures how much of the available credit you use compared to total available limits across accounts; an ideal utilization rate would be 30% or lower to protect credit scores and avoid potential negative consequences.
Store cards generally have higher credit utilization rates than other forms of cards, so closing one could significantly raise your total utilization ratio. Therefore, it is wise to wait before closing any card until it is certain you won’t use it again – however it would still be smart to think ahead and consider alternative cards before the store you currently hold one with closes so you can select the ideal option for yourself – our Spender Type tool can assist with that goal.
In other cases, your account will be closed
Retail stores close for various reasons – bankruptcy, changes in business strategy or mergers can all have a devastating impact. When they close, so often do their credit cards too. If a store goes out of business without leaving any outstanding debt balances behind, you may still use it at other sister locations or online to redeem any rewards you’ve accumulated; but if it goes under and your card becomes insolvent you could still owe anything owed due to insolvency issues or otherwise.
Credit card issuers make money through interchange fees charged by banks each time you swipe your credit card. These costs account for why many store credit cards have lower limits; to avoid incurring interest charges it is important to clear off your balance as quickly as possible or transfer it onto another card with 0% APR and pay it off faster!
If your store credit card holds a substantial balance, its closure could result in an adverse impact on your credit score. That’s because part of your score depends on the length of time each account has been open; so if this store card was one of your longest-held accounts it could play an outsized role in shaping it.
Closing a credit card will also erase its history, potentially leading to a temporary dip in your score. Your overall creditworthiness can also be determined by diversifying your portfolio – having multiple kinds of cards can give a better idea of your overall worthiness.
Your store credit card’s fate ultimately depends on how its issuer treats you, whether or not you carry a balance and how your history with other cards compares. For this reason, it may be beneficial to avoid opening store cards if they won’t benefit your spending at that retailer; alternative options might include keeping an established card account while creating an effective debt-to-available-credit ratio instead.
In other cases, you’ll be able to continue using it
As mall anchor stores close due to what some have dubbed the “retail apocalypse,” you might be tempted to hold onto any store credit cards you’ve been carrying, including store-branded ones that may only work at specific retailers; but don’t be misled by their names: though many store-branded cards function similarly as traditional closed-loop accounts, other cards (and rewards cards from major issuers like American Express or Visa) work differently from your typical revolving account.
Major banks or credit card companies issue most credit cards that are issued under “closed-loop” accounts that are managed by separate finance companies from merchants whose names appear on them, rather than directly being owned by those retailers whose names appear on them. When stores close down, the debt you owe on these closed-loop cards still belong to these finance companies – you are required to continue paying back until it’s completely paid off by making payments until then.
Many people mistakenly believe that when their favorite store closes down, so will their credit card debt. Unfortunately, that is not true – according to Equifax’s recent report this misconception is leading to more missed payments and payments being missed altogether.
Under certain conditions, your debt could be covered if you can continue shopping with a sister chain of the retailer that’s closing its physical locations. For instance, Toys R Us went bankrupt in 2017, yet still maintains an online presence where you can shop and redeem rewards points at its website.
If your credit card can no longer be used at other retail chains that are unrelated to the store where it was issued, its issuer will most likely notify you prior to closing the account and terminating new purchases. This is standard practice in credit card companies as part of their commitment to openness with customers regarding any significant changes to terms.
However, it’s important to be mindful that closing a retail credit card account with outstanding debt could have an adverse impact on your overall credit score. While this effect should only be temporary and as you continue paying down other cards’ debt, your score should eventually improve again; just remember to make payments of at least the minimum monthly payments to prevent further loss.