When a store leaves town — a scene that has played out thousands of times in recent years — it doesn’t take your store credit card debt along with it, even if the retailer closes all of its locations.
“If the consumer has a balance on the card, they still would owe it to the issuer,” says Chi Chi Wu, an attorney for the National Consumer Law Center, who specializes in consumer credit issues.
When you own a store-branded credit card that works only at that specific retailer, it doesn’t mean the store itself offered you financing. These type of “closed-loop” credit cards are still underwritten by a bank, which means your debt is owned by the bank and not the store itself.
So if that mall anchor closes, the bank still will be looking to collect on what you owe. If the thought of your favorite store closing makes you nervous, consider opening a cash-back credit card instead.
Here are some common questions to consider if your go-to store goes under.
What happens to my credit card?
It depends. There are three possible scenarios when the retailer associated with your card closes its brick-and-mortar locations:
- The account gets closed.
- The card can still be used for online or other purchases within that brand.
- The issuer will assign your line of credit to another retailer.
“All of that comes with notification, and as the consumer it gives you time to make a decision if you want to stay on for the ride,” says Bruce McClary, vice president of public relations and external affairs for the National Foundation for Credit Counseling. If you’re not interested in online shopping or making the switch to another retailer, you can opt to close the account.
Closing the account doesn’t erase it from your credit history, though. If your card is closed because a retailer goes out of business — or due to your own inactivity — it will still appear on your credit report.
If the issuer closes my card, will it affect my credit score?