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It’s one thing to lose access to your favorite store and yet another when the business goes kaput entirely. With no physical locations and no online presence, you obviously won’t be shopping with them anymore. But, what happens to your store credit card?
Here’s what happens when you have a store credit card but the store goes out of business.
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What Happens to Your Store Credit Card
Your Account May Close
While some store credit cards are truly “closed-loop” that can only be used within a single store (or family of stores), others may be offered through major issuers like American Express or Visa.
If a retailer closes only some of its locations but keeps others open (or if it maintains an online presence) it’s possible nothing will change with your store card.
However, if the store the card is associated with goes out of business altogether, that’s another story. In that case, your account will likely be closed, which makes sense since the card could only be used at that specific retailer anyway. You will receive a notice from the store or card issuer that lets you know when the closure is final, which can give you time to plan.
The account closure may not matter to you if you do not have any revolving debt but you may see an impact to your credit score if you do. This is due to the fact that your credit utilization will go up due to the card closure and the fact that you no longer have any available credit on this account.
As an example, let’s say that you have several credit cards with an overall total limit of $10,000 and your store card had a limit of $2,000. If your store card closes, your total available credit then goes down to $8,000. If you have revolving debt on other cards, your credit utilization will suddenly go up. Ideally, you’ll keep your credit utilization below 30%, so you should strive to pay down debt below that amount if you can.
If your card is open-loop, it may be worth contacting the issuing bank to see if they will move your available credit to another card in their portfolio. Doing this will help keep your credit utilization rate down.
Your Rewards Will Disappear
If you were earning rewards associated with a store when you used your store card, those rewards will go poof right along with the store itself. Because of this, if you receive notice of or anticipate an impending closure, you should attempt to spend any and all rewards while the store is still open.
For example, JC Penney has a store card, the JCPenney Credit Card* and its own rewards program, yet this retail giant filed for bankruptcy protection on May 15, 2020. As of this writing, JC Penney stores are still open and the company website is fully operational. However, if you’re worried your card’s store will soon cease to exist, you should head to a local store or get on the website to spend any rewards you currently have.
Your Credit Card Balance Will Not Disappear
Unfortunately, a store closure doesn’t let you off the hook from repaying your debt. You will continue to receive billing statements from the card issuer and you’ll have to repay all the amounts you owe on your card.
Since store cards tend to come with high APRs, you should strive to pay off closed store card balances as quickly as possible. If you need some time but are tired of paying an exorbitant interest rate, you should also look into 0% APR credit cards that let you transfer a balance to avoid interest for several months while you pay more of it off.
Our Advice for When Your Store Card Closes
When your store card closes, we suggest paying your balance off and moving on to a new card with better benefits.
Your card issuer knows you may want to move onto a new card and will likely suggest an alternative card for you. However, you don’t have to accept their offer to apply for a new card. There may be alternate cards with other issuers that make more sense for your shopping preferences—or you may not need a replacement card at all.
If you do decide you’d like to apply for a replacement card, you should take the time to explore all your options. While store cards can provide in-store discounts and they’re often easier to qualify for, traditional credit cards tend to come with more purchase protections and cardholder perks. Better yet, rewards you earn with a traditional cash-back credit card or rewards card can typically be redeemed in a ton of different ways—not just at a single store.
Our credit card guides can help you find a new credit card with better perks, so make sure to browse all the top card offers to find the right fit for your goals.
What Happens to Gift Card Balances When a Store Closes?
Now, let’s face another important question: Where do gift card balances go when a store closes its doors? A lot of times, you will not receive a refund at all. However, there are some steps you can take if you have a gift card balance with a retailer that no longer exists.
According to the Consumer Federation of America, you should start by trying to contact the business to see if they will voluntarily provide you with a refund. This may be easier to do if you had a gift card for a small local business vs. a giant national company. You can reach out to the city or town hall where the business is located to find contact information.
If this doesn’t pan out, you can also check to see whether you paid for the gift card with a credit card. If you did, the Consumer Federation of America says you can file a chargeback on your credit card and potentially get a refund that way.
Next, they recommend contacting a government agency that provides protections for consumers in your state. You may or may not be able to get your money back this way, but it won’t hurt.
Finally, you can file proof of your claim with the US Bankruptcy court. When you take this step, you’ll be added to a list of creditors who are owed money by the company. This doesn’t mean you’ll get a refund for your gift card amount, but you’ll be in line for a refund if money becomes available.
Could Your Homeowner’s Insurance Policy Come Into Play?
Interestingly, it’s also possible you could file an insurance claim on your gift cards if the store associated with them shutters its doors. For example, Erie Insurance was inspired by Covid-19 related store closures and added something called “Local Gift Card and Gift Certificate Reimbursement Coverage” as part of their ErieSecure Home® Policies.
This coverage is a useful umbrella, but highly restricted and not common among most homeowner policies. So, if you’re left with a gift card you can’t use after a company goes out of business, it’s worth checking with your insurer to see what’s covered—but don’t be surprised if you’re out of luck.
When it comes to gift cards, you’re best off using them as soon as possible to protect yourself against loss or theft as much as store closings.
Store cards are appealing for their discounts, especially at retailers you frequent, but compared to traditional credit cards they’re at a greater risk of being discontinued. If you already have a store card or two you don’t necessarily need to close them, you can hold onto them and enjoy their but don’t hoard your rewards, just in case.
Sadly, there’s not much you can do if the underlying store closes and your account is closed. The best course of action is to simply move on and to find a more stable card for any future purchases—and to think twice before jumping into any other store cards next time you’re at the register.