Retailer gone bankrupt? What retail card holders should do

You still have to pay back any balance you owe

However, the finance company will continue to collect on the debt as it did before. Retailer gone bankrupt

“Cardholders continue to receive billing statements and are required to make monthly payments until their balance is paid in full,” says Mason Burnham, a former spokesman for Synchrony Financial, which manages the credit card programs of such retailers as Conn’s and Rooms to Go.

In some cases, finance companies may work with customers to establish payment plans if a customer needs one or suggest other credit card options once the account is closed. Consumers may also have to redeem credit card rewards by a certain date or else they will lose them.

However, Sullivan points out that the finance company is primarily focused on getting the debt repaid rather than keeping you as a long-term customer, so it may be more aggressive about collections if you’re late to pay. Retailer gone bankrupt

In some cases, a retail store manages its own credit card portfolio, Kennedy says. In that case, the portfolio would typically be sold off during the bankruptcy proceedings. Any cardholders would receive information about where to send their payments, but again, they would still be responsible for any outstanding debt. Retailer gone bankrupt

See related: Closed account affects your credit score, but maybe not how you think

How can a retail store closing affect your credit score?

Perhaps of more concern to a bankrupt store’s cardholder is the effect of a closed card on their credit score.

Once the balance on a credit card of a store that has filed for bankruptcy has been paid, the merchant or finance company will close the account. Your credit report will say that the account was closed by the creditor. Retailer gone bankrupt

If you close the account before the creditor does, it will state that the account was closed by the consumer. Neither of those actions, however, will reflect badly to future lenders.

But any time a credit account is closed, your credit score may be negatively impacted, particularly if you have other credit cards with balances. A major factor in your credit score is the credit utilization rate, which looks at the amount of outstanding debt you have in relation to the amount of credit you have available. Retailer gone bankrupt

If your now-closed store credit card had a $2,000 credit limit, you may go from having, say, $10,000 in total credit available across all your other cards to $8,000 in total credit available. So, with any other outstanding balances, your debt-to-available-credit ratio will suddenly rise, which could hurt your credit score. Retailer gone bankrupt

Closing the store card account could also hurt your credit score in another way down the road. The length of your credit history factors into your credit score. If the store credit card is one of your longest-held accounts, you’re eliminating that history when the account is closed, Sullivan points out.

“So assuming that the history was positive and you had a good relationship with that company, you’ve taken another hit.” Retailer gone bankrupt

However, the activity with that account will remain on your credit reports for 10 years, even as a closed account, so the hit won’t happen overnight and should be minimal, provided you have other active credit products contributing positive information during that time. Retailer gone bankrupt

See related: How to build good credit

Bottom line

The good news is any decline in your credit score when a retailer goes under is likely to be temporary, and by paying your bills on time and otherwise using credit responsibly you can build up your score. There will also be other retailers willing to woo consumers with credit cards. Retailer gone bankrupt

“With the evolving retail landscape, some stores are closing, but many others are finding new opportunities to grow in the current climate,” McConnaughey says. “Consumers should feel confident in continuing to take advantage of the perks and benefits made possible through these types of branded credit and loyalty solutions.”