Last year, we saw Toys R Us and Radio Shack file for bankruptcy protection. They weren’t the only ones and based off how millennials are buying less than previous generations, as well as the emergence of online shopping, they will most likely not be the last. In the event that a store is shutting their doors, what happens to that store credit card you have? Don’t think that because the store is closing that the credit card disappears with them as well. Be aware of these top things if you find yourself in this situation.
You Still Have to Pay Off the Debt
If you have accumulated debt on that store credit card, even if the company goes out of business, you are still on the hook for that debt. You should still receive a statement in the mail and will be required to make payments on time until the debt is paid off. Usually, the finance company that handles the credit card will notify the cardholder of any changes regarding the bankruptcy.
Typically, the company that you have the credit card through does not manage the debt. A separate finance company will handle it usually. Sometimes the card will just be transferred over to a more generic card. However, each situation is different, and in some cases, the account may be closed by the creditor and will show as such on your credit report.
Your Options with the Card
When the company goes belly up, you will most likely lose all of your rewards that you have earned. It is best to make use of these before they are gone for good. In some cases, the company may continue to do business online, which will enable you to use the card for online purchases. If you find yourself in this situation, you should try to keep the line of credit open because if you decide to close it, and it happens to be one of your longest lines of credit, it could have a negative impact on your credit score.
What This Means for Your Credit Score
Say for example you have a total of $10,000 in credit lines. If you have a debt of $5,000, then your debt-to-available-credit ratio is at 50%. If you store credit has a credit line of $2,000, and now that is all of a sudden gone, you will now be well above that 50% mark, which will have a negative impact on your credit score. Furthermore, once that account is gone, any good history you had will be gone in 10 years.
According to “Retailer gone bankrupt? What retailer card holders should do,” any negative impact this may have on your credit score will most likely be temporary. If you have other lines of credit, you can make up for the lost of good history with the closed card with other accounts. If you hear that a company is going under, and you happen to have a credit card there, you should stay on top of their status. That way you aren’t surprised by any sudden changes and can make the best use of your card while it is still active.