So it’s happening: your favorite retailer is officially going out of business. You’ve received the “liquidation sale” emails and reminders to use up your rewards points ASAP. As a loyal customer, the store closing is probably enough disappointment on its own.
But now on top of that, you might be wondering what the closure means for your store credit card, rewards, and your balance. And then there’s your credit score – if the retail credit card account closes along with the store, how does that impact your credit?
If you’re a store cardholder you probably have some questions about what happens next. Luckily, if your store credit card does get closed, there may be steps you could take to protect your credit score and get the most out of your card while you can.
Before we get into what you can do if your store card closes, let’s talk about why your credit score may drop if the card bites the dust. When a company goes out of business, their store credit cards might go away with them, meaning those accounts will close, too. It doesn’t always play out that way - if the store remains online or the credit card is affiliated with other businesses that will remain open, you might be able to keep using the card.
But if a store does “cut up” your card, your credit score could feel it. That’s because the closure could hike up your credit utilization, the ratio of your credit card balances to credit limits.
In general, it’s a good idea to keep your credit utilization at 30% or lower. Say your current available credit limit (including the store card) is $15,000 and you typically spend about $4,500 a month. That puts you at exactly 30% credit utilization.
Now, if your store card had a credit limit of $2,500, that puts your new credit limit at $12,500. If you continue to charge $4,500 a month, your credit utilization jumps to 36%. While that might not feel like a major difference, that increased credit utilization ratio might ding your credit score. (Note that store credit cards typically have lower credit limits than other cards, so the account closing might not affect your credit utilization that dramatically if you’re not spending a lot.)
Your credit score may also take a hit if the retail account that’s being closed is your first credit card. It's often easier to get approved for store credit cards, so they can be a good entry card when you’re first building credit and have little-to-no existing credit history.
Closing your oldest account could shorten the length of your credit history, which accounts for 15% of your FICO score. Keep in mind the potential credit score drop may not happen right away – closed accounts could take a few years to fall off your credit history.
Now, seeing your credit score drop as a result of nothing you’ve done or have control over – like the company going out of business – can certainly feel unfair. But being aware of your credit utilization numbers and the impact on your credit history will help prepare you to handle any potential temporary dings to your credit score.
And above all else, making payments in full and on time is the best thing you can to protect your credit.
The first thing to know is that any rewards you’ve earned with your card will likely be useless once the retailer or account issuer closes your account. So if you do have rewards saved up, you might want to use them sooner rather than later.
But before you go on a final shopping spree, be sure to contact the business to find out the specifics of how to use your rewards. The store might be offering special redemption options, or have an online site or affiliate stores where you can redeem your rewards.
There’s also a chance you still may be able to use your retail credit card, or may be able to switch to a different card from the same issuer. If the physical retail locations have closed, but they’re still open online, you can keep using your card for online purchases. You also might be able to keep using your card if the store has affiliates that are still open and will accept its card.
In some cases, brands that have many different stores/businesses all under their same umbrella will allow you to use your card at multiple retail businesses within that brand.
When you find out the business is closing, it’s a good idea to take stock of your current credit utilization and credit limits across all your accounts. Subtract your store card credit limit from your total limit is to see what your new available credit will be once your account is closed.
If your credit utilization won’t dramatically change by the difference in credit, then you don’t have to do much other than continue making payments on time. If it will make a significant difference, or you’re just worried about a potential dip, you have some options.
You can apply for a new credit card to make up the difference (though this could trigger a hard credit inquiry and also result in a temporary ding to you credit score), or you could request a higher credit limit on an existing account.
If your store credit card is also your oldest credit account, unfortunately, you can’t magically lengthen your credit history (besides, of course, waiting). Luckily, as we mentioned earlier, the drop may not happen for a while, and credit history only accounts for 15% of your overall credit score.
So even if your history gets cut short by the account closing, keeping your utilization low and making payments on time can be more impactful since together, those two factors account for up to 70% of your FICO credit score.
What happens to remaining rewards you might have had on your store credit card? If you can’t use them online or at affiliate stories, sadly, they might just expire.
Another option is one we mentioned earlier: you might be offered a product change by the card issuer. Essentially, that just means you could be able to change to a different credit card offering by the same issuer, possibly for another branded credit card or not. The options will likely be determined by the issuer, so your best bet is to contact them directly.
This could be an appealing option if your store credit card was your first credit card because it allows you to maintain that credit history. For details regarding your account, call your specific store or issuer and find out what options are available.
Keep in mind that any balance on your store card account is still due. Yes, even if the business no longer exists, you’ve still got to settle up. Retail credit cards could have higher-than-average APRs, so late or missing payments could cost you quickly.
The payment process may not change. Retail credit cards are usually offered through a separate financial institution who manages the accounts. In that case, you would still owe your balance to the issuer. If the store itself manages its branded card accounts, the debt might get sold to another institution during the closing, so you’d pay them.
Call the retailer to find out exact payment details if you’re unsure.
Economic events like recessions and retail trends like online shopping have the potential to dramatically change the landscape of store credit cards. To ward off any confusion and missed opportunities (like seeing the rewards that you’ve built up expire!), it’s a good idea to be proactive when you hear that your favorite retailer is going out of business.
Each store closing and credit card account will be a little different, so if you’re wondering about how to use your rewards or pay off a balance, read up on the specifics or contact the store for more information. And taking steps to protect your credit score is always a good idea. Remember to keep your credit utilization under 30% and make payments on time and in full.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.