Why Retail Bankruptcies Are Leading to an Increase in Credit Card Delinquency

The tide of store closures and bankruptcies that’s rocked the retail industry over the past decade has had far-reaching consequences all the way from the sales floor to Wall Street. Now it looks like shoppers’ credit scores may be next to take a hit — at least if they don’t pay off their balances on credit cards attached to shuttered stores.

According to Equifax, in March, the late payment rate for private-label retail credit cards hit the highest level since early 2011, after rising steadily since 2013. The severe delinquency rate, which represents those 60 days or more past due or in collections, increased to 4.65 percent, up 57 basis points from the same time last year.

While some cardholders may believe their debt disappears when a store does, the reality is that the balance is owed to a lender, not the retailer itself. On Bon-Ton’s website, for instance, the bankrupt retailer instructs customers that while their rewards and benefits are no longer valid, the terms and conditions of their account continue to apply until their balance is paid in full. If they don’t, it could eventually hurt their credit score.

“With these higher delinquency rates in private label cards, we see that some consumers are abandoning their payment responsibilities when retailers close a local store or declare bankruptcy,” Amy Crews Cutts, Equifax’s chief economist, said in a statement. “This is a huge mistake, as the lenders behind the private-label cards are still reporting to credit bureaus, and the creditors to the retailer are keen to collect any outstanding accounts receivable toward their outstanding debts.”

Late-paying consumers have a collective balance of $81.7 billion, up 0.8 percent over 2017.

According to Experian’s 2018 State of Credit, consumers hold an average of 2.5 retail credit cards with an average balance of $1,841.

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