Bryan Thomas / Stringer / Getty Images

Retailer gone bankrupt? What retail card holders should do

The coronavirus pandemic is likely to make the ongoing trend of retailer bankruptcies worse


If you have a balance on a shuttered retailer’s store card, you will still need to pay it off. And if your retail store card is closed by the issuer, that could have a negative effect on your credit score.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Although the trend of retail store closings has been going on for years, the coronavirus pandemic is likely to make it worse.

Lockdowns that have shut down retail store locations while keeping consumers at home don’t bode well for retail outlets. Pier 1 Imports and Papyrus are among the well-known names that filed for bankruptcy early in 2020, even before the pandemic impact was felt in the U.S., and other chains such as J. Crew and Neiman Marcus soon followed.

Retail store bankruptcies boomed in 2017

Since the beginning of 2017, retailers such as Macy’s, Sears and J.C. Penney have closed stores across the country, though those cardholders can still use their cards online or in other locations.

The year 2017 set a record for retail store bankruptcies, with 662 retailers declaring bankruptcy. Some retailers have continued to do business during bankruptcy and hope to emerge.

The toy chain Toys R Us, for example, declared bankruptcy in 2017 and announced in March 2018 it would close its U.S. stores. However, it was able to open up with a smaller-store format in 2019. Others do not make the transition.

But retailers aren’t the only ones taking a hit. Some consumers left holding credit cards for bankrupt stores could be in for a rude awakening as well.

“If you’re a credit card holder at a company that goes out of business it’s all bad news,” says Mike Sullivan, a personal finance consultant at Phoenix-based credit counseling organization Take Charge America.

Not only do you lose one of your lines of credit if the card is closed, which may cause a dip in your credit score, but you could also lose any card-related rewards that you may have carefully stacked up.

See related: How to cancel a credit card without hurting your score

What retail card holders should expect if a retailer goes bankrupt

  • Any balance you have on a bankrupt retailer’s card must still be paid.
  • Cardholders will receive communication from the retailer or finance company telling them where to send payments.
  • You may be given a certain amount of time to redeem rewards or they may be gone entirely.
  • Your card most likely will be closed by the issuer, which could negatively impact your credit score if you’re carrying balances on other cards by boosting your overall credit utilization. If the retailer managed its own cards, it will also likely sell off your debt to a third party.
  • You can offset any credit damage by paying other card bills on time and reducing balances.
  • It’s also possible that you will be allowed to use your card at the bankrupt company’s associate companies if there are any.

You’ll be contacted by a finance company

So where does that leave a store credit card holder when the store goes belly up? For those who have a balance on the card, they don’t get a free pass from paying what they owe.

Generally, retailers work with a finance company to issue their retail store credit cards, says Colleen Kennedy Thiry, a spokeswoman for TransUnion, one of the three big credit bureaus.

“In the event of a retail company bankruptcy, the finance company would continue to maintain the card portfolio,” Kennedy says.

Finance companies typically contact cardholders to let them know about how the retailer’s bankruptcy might affect them, including any changes on where to send payments.

“We understand the sense of uncertainty – and even loss – a consumer may feel when their favorite store closes or the brand goes out of business entirely,” says Tammy McConnaughey, chief enterprise credit officer for Alliance Data’s card services business.

Alliance Data’s Comenity Bank division issues credit cards for such brands as Ann Taylor, David’s Bridal and Crate and Barrel.

“As the bank managing the credit card, we are committed to communicating openly and clearly to card members during the process,” McConnaughey adds.

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.

“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.

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.

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.

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.

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.

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.”

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.

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.

“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.”

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more