What Happens to Your Store Credit Card When the Store Closes?

By Dan Rafter. Last updated 19 February 2018. 0 comments

This post contains references to products from our advertisers. We may receive compensation when you click on links to those products. The content is not provided by the advertiser and any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any bank, card issuer, airline or hotel chain. Please visit our Advertiser Disclosure to view our partners, and for additional details.

The year 2017 won't go down as a banner year for retailers. Big-name companies such as The Limited, Toys R Us, RadioShack, and Gander Mountain all filed for bankruptcy protection last year.

With bankruptcy comes the closing of hundreds of stores, and that means the company behind one of your store credit cards could shutter the locations nearest you. That retailer might even go out of business entirely. That leaves two questions: Should you close a store credit card if it's unlikely that you'll ever use the card again? And if a store goes completely out of business, what happens to the credit card it issued you? (See also: Should You Sign Up for That Store Credit Card?)

When a retailer goes out of business

Let's tackle this predicament first. When a retailer goes out of business, your credit card account with that merchant will usually be canceled, and will be reported as canceled on your three credit reports (maintained by Experian, Equifax, and TransUnion).

What won't go away, though, is the balance on your store credit card. Most store credit cards are not actually owned by the retailers whose names are printed on the front. Instead, they are owned by banks or large credit card companies. When a retailer goes out of business, you must keep making payments on its branded credit card until the debt you accrued is paid off.

If you stop making payments, you will damage your credit score. A single late payment of more than 30 days past due could send your score falling by 100 points or more. A missed or late payment also remains on your credit reports for seven years.

If a retailer goes out of business, any rewards you've earned on that store credit card will also disappear. If you know that the store behind your credit card is on the verge of shutting its doors, you should redeem those rewards before it's too late.

When a retailer closes its nearest locations

If the store that issued your card isn't going out of business completely, and is instead just closing the brick-and-mortar locations nearest to you, keep in mind that you may still be able to use that store card for online purchases. But if you truly don't think you'll ever use the card again, you might decide that it's pointless to hold onto it and cancel the account.

This is the wrong move. Closing a credit account, even one you don't use anymore, will hurt your credit score.

You have something called a credit utilization ratio, which accounts for 30 percent of your credit score. This is a measure of how much of your available credit you are using at any given time. The more of your credit that you are using, and the higher this ratio, the lower your credit score will be.

Closing a store credit card, even if you no longer use that card, will automatically lower your credit utilization ratio. Say you have three credit cards — one with a credit limit of $10,000, a second with a credit limit of $5,000, and a store card with a credit limit of $3,000. That gives you $18,000 of available credit. Now, say you owe $7,500 total on these credit cards. Your credit utilization ratio is about 42 percent, or $7,500 divided by $18,000.

If you close that store card with a credit limit of $3,000, your available credit instantly falls to $15,000. Even if you don't make any more charges, your credit utilization ratio has automatically increased to 50 percent ($7,500 divided by $15,000).

So even though you didn't add to your credit card debt, your credit score could still take a hit if you close that store-branded credit card.

Store credit cards are a hassle when a retailer closes stores or goes out of business. But opening a store credit card might not be a smart move in any circumstance. Store cards that can only be used at one retailer aren't flexible. Why not instead open a non-store credit card that comes with a solid rewards program and that you can use anywhere, including at your favorite retailer? Such credit cards are far more useful than single-retailer brands. (See also: 5 Store Card Pitfalls to Watch Out For)

Like this article? Pin it!

What Happens to Your Store Credit Card When the Store Closes?

Average: 2.8 (10 votes)
Your rating: None
Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.