Q&A: Should I get a store credit card after Toys R Us bankruptcy filing?

If you frequent the retailer's stores, sure, but redeem rewards as you earn them

Cashing In columnist Tony Mecia
Tony Mecia is a business journalist who writes for a number of trade and general-interest publications. He writes "Cashing In," a weekly column about credit card rewards programs, for CreditCards.com

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Question Dear Cashing In,
We have several small children and spend a lot of money at Babies R Us. I was thinking about getting the Toys R Us credit card, which gives money back at Babies R Us, but I just read that the company has filed for bankruptcy. Should I not get the card because it has filed for bankruptcy? – Shelly 

Answer Dear Shelly,
Whether you should you get a store’s credit card once a retailer has filed for bankruptcy largely depends on how often you frequent that retailer, in your case, Babies R Us and Toys R Us. 

Tough times for traditional retailers
A lot of people don’t realize that the retail industry is in a lot of turmoil right now. Many traditional brick-and-mortar stores are having trouble competing with Amazon as Americans become increasingly accustomed to buying goods online. 

This has propelled scores of retailers to file for bankruptcy protection in the past couple years – including well-known names such as The Limited, hhgregg, RadioShack, Gander Mountain, Payless ShoeSource, rue21, Gymboree, Aeropostale and Sports Authority. In September 2017, Toys R Us joined the list.

Several of these stores, including Toys R Us, offer – or offered, in the case of the retailers that shut down operations – store-branded credit cards. 

The type of bankruptcy matters
First, it’s important to understand what filing for bankruptcy protection means and what it does not mean. 

When a company such as Toys R Us files a Chapter 11 bankruptcy, it gains protection from its creditors while it reorganizes its finances – just like a personal bankruptcy filing. A Chapter 11 filing does not mean the retailer is going out of business, though that sometimes happens if the reorganization plan fails. 

When a retailer files for Chapter 7 bankruptcy, it must liquidate its assets and use those funds to pay off debts. This often means store closures, as in the case of the Alfred Angelo bridal shops in July. 

Toys R Us and other retailers that have filed for bankruptcy protection very much want business to continue as usual while they restructure their debts. This includes loyalty programs and credit cards, which help them retain customers. 

On the Toys R Us website, the retailer says it “will continue honoring return policies, warranties, gift cards and layaway programs” and that the “R Us Credit Card will continue to be accepted. We encourage you to use your card to keep earning Reward Points.” 

The R Us card offers a lot of rewards
The R Us Mastercard, offered by Synchrony Bank, is typical of cards offered by retailers. It has no annual fee and offers cardholders rewards on purchases at Toys R Us, Babies R Us and everyday spending, but store cards have interest rates that are higher than with general credit cards. In this case, the R Us Mastercard’s APR is 26.99 percent for new cardholders, compared to a national average APR just north of 16 percent, according to CreditCards.com’s Weekly Rate Report

R Us cardholders receive 15 percent off their first purchase at Toys R Us or Babies R Us, and they earn reward points when they use the card: 2 points per $1 for purchases at one of the stores and 1 point for $4 in spending everywhere else.  

Every 125 points earns a $5 rebate, so the rewards rate of 8 percent back at R Us stores is actually superior to many other retailers’ cards. Credit card holders are also eligible to receive 10 percent off on Thursdays, though there are plenty of exclusions on what’s available for the discount, including certain electronics, Build-A-Bear, Ugg shoes, Nike apparel, and “American Girl Wellie Wishers.” 

Should you get an R Us card now? That depends
Like most retail cards, an R Us Mastercard probably makes sense only if you shop Babies R Us or Toys R Us regularly. If not, the reward earnings rate is meager, the interest rate high and you’d be better off with a generic cash back card that gives you 1.5 percent or 2 percent back everywhere. 

You shouldn’t worry about using the credit card of a retailer that has filed for bankrupty protection. Especially when stores are in financial distress, they want to do everything they can to keep you shopping there – including offering reward credit cards. Do be alert for news about how the Toys R Us bankruptcy reorganization is proceeding.

One bit of advice: If you sign up for an R Us Mastercard, use your rewards as you earn them. Don’t wait. If the Toys R Us and Babies R Us reorganization fails and the company ceases operations some months or years down the road, you may be given a certain amount of time to redeem rewards or they may be gone entirely. 

See related: Retailer gone bankrupt? What holders of their credit cards should do, Gift cards: What to do when retailer files for bankruptcy

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Updated: 11-20-2017