Stores May Close, But Credit Card Debt Prevails

Your favorite retail company is closing stores – or declaring bankruptcy and going out of business. But you still owe money on your store credit card. Do you still have to pay the credit card bill?

Apparently some consumers may think they don’t. That’s according to the May 2018 Equifax National Consumer Credit Trends Report. But failing to pay store credit cards can hurt your credit, even if the retailer is closing stores or declaring bankruptcy.

Equifax found that severe delinquency rates – payments that are at least 60 days late – on private-label (store) credit cards rose to 4.65 percent in March 2018 from 4.08 percent in March 2017. Delinquencies are now at their highest level since early 2011.

In a recent webinar co-hosted by Amy Crews Cutts, Equifax chief economist, and Cristian deRitis, senior director at Moody’s Analytics, the duo discussed reasons why these delinquencies were on the rise. Retailer bankruptcies were a significant factor, among others. “Some consumers are abandoning their payment responsibilities when a retailer closes a local store or declares bankruptcy,” said Cutts.

“This is a huge mistake … The decision not to pay on these cards in hopes that the retailer will forget them will haunt these consumers for a while and may impact their ability to take out credit in the future. The lenders behind those store credit cards are still active and reporting to credit bureaus. And, the creditors behind the closed store still want to collect as much outstanding debt as possible.”

Once you pay off the balance on the card, the account likely will be closed by the card issuer, or you may choose to close the account. Either way, if the lender reports to any of the three major credit bureaus, it will be reflected on credit reports issued from those bureaus.

If the credit card account is closed (either by you or by the company), it may impact credit scores by changing your debt-to-credit utilization rate – the amount of available credit you are currently using.

So what should you do if a retailer you owe money to goes bankrupt ?

— Keep paying what you owe. The bank or finance company that manages credit accounts on behalf of the retailer will continue to send you statements advising how much you owe and where you should send payments.

— If your card has a reward program, watch out for a limited amount of time to redeem your rewards – or be prepared to possibly lose them entirely.