At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.
In this article:
You have a credit card in your wallet for a retailer you frequent, and you see on the news that they're going out of business. You might wonder if it's your lucky day, with your sizable credit card balance disappearing along with the store.
While this would be a nice treat for the cardholders, the hard truth is this: You still owe the balance on a store credit card even if that company closes or goes under. If a retailer whose credit card you have is shutting down, here's what you need to know about the process and how it can impact your credit score.
What Happens to Your Store Card When a Store Closes
Stores close down all the time, whether due to bankruptcy, business decisions or a merger or acquisition with another retailer. This can be frustrating if it's a store you often shop at, but it's especially inconvenient if you have a credit card with the retailer that's shutting down. Retail credit cards are known for their high interest rates, though they often feature shopping discounts and rewards that some cardholders enjoy.
So what happens to your store credit card when the store it's connected to plans to shut down? First, no matter what, do not stop making payments on your credit card account. This will just result in late or missed payments that can hurt your credit.
The store card issuer will contact you and inform you of their plans and what it means for your account. The specifics of what happens next can vary by situation and the business and bank involved. That said, here are the answers to a few common questions about what to expect:
- Do I still have to pay off the balance? Yes, you still owe your balance. That's because the credit card isn't just connected to the retailer; all store credit cards are underwritten by a bank, so that bank still needs to be repaid as usual. If your payments should be made in a different way than usual, the issuer will let you know.
- Can I still use the credit card? Probably not; it's common for the issuer to close credit card accounts when the connected store closes. When the issuer notifies you of closure, they should give you a date after which the card can no longer be used. There are potential exceptions: If the store is still operating online, or the parent company owns other stores that aren't going bankrupt, you might be permitted to continue using the card at associated businesses. In those cases, the issuer will typically provide cardholders the choice of closing the account or continuing with the new arrangement.
- Can I still use my rewards? It's possible your unused rewards will disappear once you get news of the store closing, but some issuers may give you a window of time to redeem them. The issuer should let you know in their communications about the closure. If you haven't received guidance and you have unused rewards you want to use, contact the issuer right away to find out their redemption policy.
What Happens to Your Credit Score When Your Store Card Is Closed?
Anytime a credit card account is closed—whether because you chose to close it or because a shuttering retailer did—it can impact your credit score. While closing the card in and of itself doesn't hurt your credit, there are two indirect ways the closure can have negative effects:
- Increasing your credit utilization rate: Your credit utilization rate contributes to 30% of your FICO® Score☉ . This rate looks at your credit limits and how much credit you're using vs. how much is available. Having high balances—especially ones close to credit limits—translates to a high credit utilization rate and hurts your credit score. If you didn't have a high balance on the store card, but you do on other accounts, the closure of this card can erase some of your available credit. That will increase your credit utilization rate and can hurt your credit. It's recommended to never utilize more than 30% of available credit, or 10% if you really want to aim for an excellent score.
- Decreasing your credit history's length: Your credit history makes up 15% of your FICO® Score, and your credit improves as you maintain accounts in good standing over time. If you'd had this store card for several years, and particularly if it was your oldest credit account, its closure can lower your average age of accounts. That can cause a slight dip in your credit score until you build up more history.
Bear in mind that all closed accounts in good standing typically remain on your credit report for 10 years. That means if you made on-time payments and used this store card wisely, the negative impacts may be minimal—and your responsible usage of the card can continue to benefit you.
How to Reduce the Impact to Your Credit Score When a Store Account Closes
If it looks like the shuttering of a store credit card will hurt your credit, you should take proactive steps to minimize the impacts. Here are just a few ways to improve your credit score anytime, but especially in the wake of a card closure:
- Make on-time payments. The largest factor in your credit score is payment history, making up a whopping 35% of your FICO® Score. That means the most impactful way to maintain or improve credit is to pay all bills on time, every time.
- Keep your credit utilization rate low. Aim to lower your balances on other forms of revolving credit. As you reduce your debt and free up available credit, you'll lower your credit utilization rate. This can translate into better credit scores. You could also ask issuers of other cards you hold to increase your credit limit—just don't use any additional credit since the point is to have more available (unused) credit.
- Open new accounts only as necessary. Each time you apply for a form of credit, lenders usually run a hard inquiry on your credit report. This can create a minor and temporary negative impact to your score, so one application won't make a huge dent. But many applications in a short time can cause a larger dip. If you're in credit repair mode, try not to apply for any new loans or credit cards unless you have to. It's wise to give your score some time to recover first. However, if the store card was the only credit card you had, qualifying for a new one may help decrease the impact of the closed account on your credit scores.
Give Your Credit a Bigger Boost
Learning that your favorite store and your associated credit card is closing is undoubtedly frustrating, especially if you'll lose discounts and rewards. The potential negative impacts to your credit score can also sting, but as long as you're proactive, any damage should be minimal. In addition to the tips above, you can lessen the blow with Experian Boost®ø—a free feature that gives you credit for utility bills, streaming services and other payments that don't normally count toward your credit score.