Retail credit cards can be of great value to loyal shoppers, but many former retail giants have collapsed in recent years. If your retail credit card business is experiencing financial stress, you could be affected if the retailer closes or files for bankruptcy. Here’s what you need to know about how your credit score could be affected and what you can do to minimize the damage.
Type of store closure
Store closings usually don’t mean your favorite retailer disappears overnight.
Physical site closed
Retailers can only close their physical stores and move all stores online. If so, you should be able to continue using your card normally. Or a store might close just a few locations or one brand in a family.
If the retailer closes all branches, your card account may also be closed. However, if certain locations or a brand’s sister stores (different brands operating under the same parent company) remain open, your card account may still be valid.
In the case of bankruptcy, the details may also be different. Sometimes, bankrupt businesses leave their doors open, hoping for a recovery. In this case, your card will still work. The retailer may bounce back and let you continue to use your card normally, or it may fail, terminate the account and make you unable to use the credit card.
Our Advice on Closing Loyalty Cards
If your membership card is closed, we recommend that you cash out your balance and replace it with a new card with better benefits.
Your card issuer knows you may want to get a new card and may recommend an alternative card for you. However, you don’t have to accept their offer in order to apply for a new card. There may be alternative cards from other card issuers that better match your shopping preferences – or you may not need to replace the card at all.
If you decide to apply for a replacement card, you should take the time to review all of your options. While store cards can offer in-store discounts and are often easier to qualify for, traditional credit cards often offer more purchase protection and cardholder perks. Even better, the rewards you earn with traditional cash back credit cards or rewards cards can often be redeemed in a number of different ways — not just at one store.
Our credit card guide can help you find a new credit card with better benefits, so be sure to browse through all the top credit card deals to find the one that fits your goals.
- Best credit card
- Best cash back credit cards
- Best Premium Credit Card
- best travel rewards cards
What happens to gift card balances when the store is closed?
Now let’s face another important question: Where does the gift card balance go when the store is closed? In many cases, you won’t get a refund at all. However, if your gift card balance at a certain retailer is gone, there are a few things you can do.
According to the Consumer Federation of America, you should first try contacting the company to see if they will offer you a refund. This may be easier if you have a gift card from a local small business rather than a large national corporation. You can contact the council where the business is located for contact information.
If not, you can also check to see if you paid for the gift card with a credit card. If you do, 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 government agencies that provide consumer protection in your state. You may or may not get your money back this way, but it never hurts.
Finally, you can prove your claim in U.S. bankruptcy court. If you take this step, you will be added to a list of creditors who owe money the company owes. This doesn’t mean you’ll get a refund for your gift card, but you’ll be in line for a refund when funds become available.
Can your home insurance play a role?
Interestingly, you can also make an insurance claim on a gift card if the business associated with the gift card goes out of business. For example, Erie Insurance was inspired by store closures related to Covid-19 and added something called “Local Reimbursement Coverage for Gift Cards and Gift Certificates” to its ErieSecure Home® policy.
This coverage is a useful umbrella, but it’s very limited and uncommon on most homeowners’ policies. So if your gift cards don’t work anymore after your business goes out of business, you should check with your insurance company to find out about coverage — but don’t be surprised if you’re unlucky.
For gift cards, it’s best to use them as soon as possible, in case they are lost or stolen, and the store is closed.