Here’s What Happens to Your Store Credit Card When the Store Closes

Toys R Us

Life hasn’t been a bed of roses for most businesses, which has led to many declaring bankruptcy. With such declarations on the rise, it’s possible that one of the stores behind your credit card might closes its doors. That won’t be surprising considering big names such as Gander Mountain, RadioShack, The Limited, and Toys R Us made it to the bankruptcy protection list. If the store closest to you closes and you had their branded credit card, you obviously cannot use it in other stores. You are therefore with two major questions. One, is it a good move to close the credit card if you believe the store has gone out of business for good? Two, what will happen to the store’s credit card if you don’t close it, and will it be of any use to you? In this article, we are going to answer those questions in depth, and help you make an informed decision.

What Happens When A Retailer That Issued Your Credit Card Goes Out Of Business?

If a retail business goes out of business, that merchant’s account will be cancelled but not your credit card’s account. Once that happens, it will be reported as a cancelled card, and it will appear so in reports you will receive from Equifax, Transunion, and Experian.

However, the balance you had on your store’s credit card will remain, and you have to clear it. That’s because the credit card on most store isn’t actually owned by the store that issued it to you or has its name printed on it. The owner is usually a big national credit card company or even a bank. The banks or Credit Company therefore expects you to keep paying your debt balance until you clear it.

If you choose to default by say 30 days, that will be enough to send your credit card score tumbling by as much as 100 points. That will lead to an instant damage to your credit card score, even if you choose to clear the balance later. Moreover, the missed payment will remain on your card for a period of seven years. Lastly, if you suspect that a retailer that issued your card is about to go out of business, redeem the points you earned immediately. Otherwise, they will disappear as soon as the issuer of that card closes the retailer’s credit card account.

A Retail Store Is Closing Stores Closest To You

At times, a store may decide that the brick and mortar store closest to you isn’t profitable enough. If they close it, you can still be able to redeem your points from its stores elsewhere or from its online stores. However, it may occur to you that you may never use that card again, and decide to close it. If you do that, then it’s a wrong move and will affect your credit card score negatively. That’s due to the credit card utilization ratio that is allocated to you. The ratio measures how much credit you are using out of the total credit allocated to you. If you use more of your available credit, the ratio rises, and your credit card score drops.

When you close your credit card, you lower your available credit. That in turn raises your credit card utilization ratio even if you haven’t borrowed more funds. For example, let’s say you had a credit limit of $7,000 on one card, $5,000 on the second card, and $3,000 on the third card. That amounts to $15,000 of credit that’s available to you. If you have debt of $6,000, then your credit utilization score is 40%, which you get by dividing $6,000 by $15,000.

If you choose to close a card from the retailer, which had a credit limit of $3,000, your total available credit will reduce to $12,000 instantly. Therefore, even if you haven’t made more charges on your card, your utilization ratio will have jumped to 50%. That in turn will lead to your credit card score being revised downwards. It’s therefore clear that opening a store credit card isn’t a smart idea, because you are limited to using it within the store that issued it. However, if you already opened one, you need to clear all your debt, and wait for the next credit card report that shows you have cleared your debt. Only then, should you close your store credit card.

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