Retail as we knew it may be over. More than 12,200 stores closed permanently in 2020, a number that was likely exacerbated by the COVID-19 pandemic.
But what happens if you carry a store credit card from a store that’s closing or restructuring? Can you keep it? Will the card close, too? What about your rewards?
The answer is: It depends.
Is the Business Shutting Down for Good?
In some cases, a business will decide to close only underperforming retail locations or to shift operations online. Your credit card account may remain open in both of these cases, although visiting a retail store may be inconvenient or impossible if the ones near you are all shuttered. If you can’t visit a retail location and are forced to order online, you may have to pay for shipping on your credit card purchases, which increases the cost of shopping with that retailer.
In more dire circumstances, a retailer may decide to close its doors for good. While some businesses emerge from bankruptcy and continue operating, for many, bankruptcy means the end of the line. In that case, your credit card will most likely become useless.
While a bankruptcy filing means the business is in trouble, it doesn’t always mean it is closing its doors for good. In some cases, the business may continue to operate, but it may close underperforming locations or adjust operations in other ways.
Can You Still Use Your Credit Card?
You may be able to continue to use your store credit card if the retailer is simply closing some locations or shifting online. You might also have the option to use your credit card at affiliate stores if they remain open.
When a retailer restructures, your store credit card and its rewards program could change, depending on the agreement between the retailer and its financing partner. The card issuer may replace your existing card with a different version of the card, you may be invited to apply for an updated version of the credit card, or you may be encouraged to apply for an entirely new card with a different retailer.
For example, Gymboree filed for bankruptcy in 2019 and was sold to The Children’s Place. Gymboree is still in business today, but its site promotes the My Place credit card—the same one The Children’s Place promotes—rather than a Gymboree credit card.
Before you apply for the new card, be aware that a new credit application will affect your credit since it results in a new inquiry into your credit. If you’re approved, a younger credit account will be factored into your credit score’s “age of credit,” which is likely to reduce your score, as well.
Unfortunately, if the store is closing for good, your credit card account may be completely canceled, and you’ll no longer be able to make new purchases with it.
Watch for mail from your card issuer. Credit card issuers are required to notify customers, in writing, of interest rate or other significant card agreement changes.
What Happens to Your Balance
Although you may have been using your store credit card to make purchases at the retail store, your credit card balance isn’t actually with the retailer. Instead, the balance is owed to a third-party credit card issuer that has partnered with the store. (Target’s credit cards, for example, are administered by TD Bank, and the relationship is significant enough that Target Corporation notes it in its financial reporting.)
This arrangement means a store liquidation doesn’t erase your outstanding balance. The original credit card terms remain in effect and the credit card issuer will continue to bill you each month for the outstanding balance just as if the store were still open. Your minimum monthly payment will continue to be due, and you’ll be charged interest on any unpaid balance each month.
What Happens to Rewards
If your card account is closed, you likely will lose all the rewards you’ve earned, per the account terms. In the run-up to that, your rewards redemptions could be limited and rewards-earning opportunities curtailed (or eliminated altogether).
Another catch: Many store credit cards only allow you to redeem your rewards for new purchases. If the rewards aren’t enough to cover the whole purchase, you may need to pay for the rest with your card just days before the store closes. With Pier 1, the card was no longer earning rewards in its dying days; even if it had been, they probably would have gone to waste, since the stores were closing.
If you’re shopping for discounts during a store liquidation sale, another rewards credit card may be a better option than the store’s rewards card.
What Happens to Credit Scores
Your credit score could be impacted by the store closing, but it hinges on the fate of your credit card and whether you’re carrying a balance. Your credit score will be most impacted if your card account is closed with a balance. Having a zero balance doesn’t exempt you from credit score damage, however. The available credit that had been factored into your overall credit utilization ratio and likely gave your score a boost will be smaller. If the amount you owe on your other credit accounts remains the same, this ratio will worsen.
If the closed card is among your oldest credit cards, it will eventually fall off your credit report and no longer contribute to your age of credit, a factor that counts for 15% of your FICO score.
The fate of your store credit card account may be outside of your control, but you can still be proactive. Once you learn that a retailer behind a store credit card you carry is in trouble, check with customer service (online or by phone) for details about changes to card terms or rewards offers. If your card is closed, quickly pay off any balance you have, so you minimize damage to your credit score.