It seems like almost every week we are hearing of a new company filing bankruptcy, between Toys R Us, Babies R Us and Sears filing bankruptcy it seems like almost every store is going out of business. Due to the rise in online retailers brick and morter companies are taking a huge hit. Many of us are waiting to see which store will be next. For many people who loved these stores and opened credit cards, many are left with unanswered questions about their card.
Many are wondering what they will I with the card? Who will I pay? And will it affect my credit? So what happens if you have a credit card from one of these stores?
If you are a credit card holder of a company that goes out of business unfortunately, there is some bad news, not only may you not be able to use that line of credit anymore you may also lose that line of credit which in turn can have an impact on your credit score. Further, any rewards or points that you may have racked up over the past few months or years using the credit card will now be gone.
It is important to note however, that just because a store files bankruptcy does not mean that you will automatically not be able to use those cards anymore. Take for example, Toys R Us they originally filed bankruptcy in 2017, however, they had planned to restructure and stay open. During that time the credit cards were still useable in their stores to purchase items. Further, the rewards points and gift cards were also still being used during that time with no problem. Unfortunately, the issues began once the retailer declared that they were going to close their stores. It was then that people would no longer be able to use their credit cards any longer. It is important to note that many times when retailers file bankruptcy they can sell off their lines of credit thus, a new company may take over the store credit card allowing, it to still be useable.
Do I still have to Pay my Bill after a company files bankruptcy?
Unfortunately yes! Just because a company files bankruptcy does not mean you have a free pass not pay your credit card bill. Generally, retailers work with a financial company to issue their retail store credit card says a spokeswoman for Transunion, one of the major credit bureaus. If a retail company files bankruptcy, the finance company would maintain the card. When this happens, the company will contact the cardholder to explain any changes as to where payments can be made. In addition, the cardholder will continue to receive monthly billing statements and be required to still pay their balance in full.
Will My Credit Score Be Affected?
So, this is probably the biggest question people have, and there is no definite answer however, it can be. If the finance company closes the card it will be marked on a credit report that the creditor closed the card, this usually has no impact on your credit report. However, what will negatively impact your credit score is the amount of credit you now have. A major factor in analyzing your credit score is the utilization rate. This looks at the amount of outstanding debt you have in comparison to the amount of credit that you have available. Thus, if a store closes their card your credit limit can go from $20,000 to $10,000 thus, impacting how much credit you have available.
Another way this can impact your credit, is by affecting your credit history if the card had been opened for a long period of time. A contributing factor to your credit score is your credit history. If this credit card was one of your longest- held accounts and it closes, you are eliminating the history you had with that account thus, causing your credit score to be impacted.
Will This Have A Big Impact On My Credit Score.
It is important to continue to making monthly payments on all of your accounts on time while keeping your balances low to improve your credit score. Credit reporting agencies recommend not using more than 30 percent of you allowable credit utilization. If you are a cardholder of a company that has filed for bankruptcy, it’s okay luckily, this shouldn’t have too much of a negative impact on your credit score, as long as you continue to pay your bills on time and take the initiative to practice good credit building.
If you are struggling with credit card debt and need a way out call one of our experienced bankruptcy attorneys. Our attorneys have years helping clients get out of financial distress. Call today for a free consultation to discuss your options.