What Should Sears Cardholders Do Now That the Department Store Has Declared Bankruptcy? (Updated)

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Update (October 15, 2018):   Sears has officially declared bankruptcy and plans to close at least 180+ stores by the end of 2018.  They will keep the most profitable stores open, as well as the Sears and K-mart websites and they are looking for a buyer.  The liquidation sales at the stores that are closing will be held within 2 weeks according the bankruptcy filing.

As a kid, I used to love visiting the Sears store in my local mall to check out all the neat tools and gadgets.  As a teenager, I once bought a Craftsman lawn tractor at Sears to support my landscaping business.  It was a totally unnecessary purchase and it was before I knew anything about credit card rewards.  I think I paid for the large purchase in cash…oops!

Fast forward a decade and Sears has been the poster child for large retailers unable to keep up with competition from online giants like Amazon.  Sears’ share price is down more than 99% from its all-time high in 2007.  The Sears CEO proposed a last-minute plan to avoid going bankrupt.  But with a large debt payment ($130+ million) coming due today (October 15), Sears has filed for bankruptcy.

There’s a good chance folks in the miles & points hobby may have a Sears credit card, or have had one at some point in time.  From my research, there were more than 40 million Sears cardholders in the early 2000s.

Here are some tips for those of you with an active Sears credit card account now that the department store has filed bankruptcy:

• Any outstanding balance must still be paid
• Your account may be closed by the issuer, which could negatively impact your credit score depending on your length of credit history and credit utilization
• It’s possible another retailer could acquire Sears’ credit card portfolio OR Citi (the current card issuer) could convert your card to a different product

Recent retailer bankruptcies show there are different ways companies and card issuers handle their credit card portfolios.  For example, Toys “R” Us cardholders were recently converted to a no-annual-fee 2% cash back credit card.  But when Circuit City filed bankruptcy, their card portfolio was acquired by Best Buy and customers were converted to Best Buy credit cards.

Travel Credit Cards Are Much More Valuable Than Store Credit Cards

The annoyances for cardholders are a reminder of why miles & points enthusiasts strongly dislike store credit cards.  Signing-up for a store card at checkout to get a small discount might seem like a good decision at the moment.  But if you consider the possible impact on your personal credit score should the retailer close your account because of a bankruptcy, you’ll see it might make sense to avoid opening any store cards.

Plus, the rewards you earn with store credit cards are typically MUCH LESS valuable than the miles & points you can earn with some of the best rewards credit cards.  And most travel credit cards offer lucrative sign-up bonuses, which can get you hundreds or thousands of dollars worth of free travel.

For example, I used travel credit card rewards to save big on a family vacation to New Zealand, which included round-trip flights in First Class!

If you’re searching for the best card to kick off your miles & points journey, consider applying for Chase Sapphire Preferred® Card.  Check out our post explaining why the Chase Sapphire Preferred is the best card for beginners!

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