Credit terms tightened

Target’s credit card business took a heavy toll on the company’s overall performance in the third quarter, as operating profits in the segment declined 83% to $35 million.

As is the case with other credit card issuers, Target saw delinquency and write-offs increase during the third quarter, as national economic conditions deteriorated.

“This leads to higher than expected bad debt expense both due to write-offs within the period as well as an addition to our reserve of $100 million during the quarter to accommodate anticipated write offs in future periods,” Target cfo Doug Scovanner said.

Based on current trends, Target’s expects a write-off rate for the year around 9% and that figure is expected to increase in 2009, which is why the $100 million addition to the reserve was necessary.

“We continue to tighten all aspects of portfolio underwriting, granting fewer new accounts with lower average credit lines, aggressively reducing open credit lines on many existing accounts and pursuing more proactive collection activities,” Scovanner said.