If you go through your wallet, your will probably find a lot of store credit cards from retailers you usually shop from. But what if they close?
This year is tough. For everyone. And when it comes to retailers, this is no exception: a lot of small businesses are facing potential bankruptcy due to the financial crisis that comes along with the COVID-19 pandemic.
So, what happens to the store credit card if they go out of business?
Usually, when a retailer goes out of business, your credit card account is canceled and reported as such on Experian, Equifax and TransUnion. However, this does not mean that the balance on your store card is canceled.
Most store credit cards aren’t operated by the store. Instead, they are owned by banks or large credit card companies. So if the retailer goes out of business, you still need to make payments until the balance is paid in full. These credit cards work as a regular credit card: if you fail to make a payment, you will damage your credit score.
What if the retailer closes the nearest locations?
Sometimes, retailers don’t go out of business completely, and instead they just close some locations. If they happen to close the stores that are closer to you, you might still be able to use the card on their online shop. However, if you decide that it makes no sense for you to hold on to the card, you can cancel it.
It is worth mentioning that this might not be the smartest move, because canceling your account might damage your score. Why? Because of the credit utilization ratio, which accounts for 30% of your score. This measures how much of your available credit you are using at any given time. So if you cancel a store card, even if you are not using it, you will damage your credit utilization ratio.