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Target Credit Criteria

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I got an email about an interesting thread on CB about a presentation Target Financial Services did for the financial community.

Here's a link and my notes.


$41 average transaction size (for all transactions, regardless of payment method)

$43 average for gift cards, $27 of which is the gift card and $16 in other payments, typically cash

Target cards (Red and Visa) are higher.

When they launched the Visa card (2002-2003), their numbers dropped (from 10% in-house cards to 3-4% of total sales), but were unexpectedly profitable in 2005 at 11%.

They observe a lot of third-party traffic on the Visa cards, offering deals to switch pharmacies (for example).

Terry Scully, President of Target Financial Services, comes in about minute 19.

Collections handles 30 million outbound guest contacts per year.

Target National Bank (based in SD) handles consumers.

Target Bank (based in UT) handles commercial customers.

Red card: average billed balance of $250.

6.4 million apps, 3.4 mil new accounts. Average purchases for new accounts: $200.

$160 average transaction for gift reward cards (when you get those bonus things).

200,000 guests enrolled in the Pharmacy Rewards program.

Bank processing fees of $400M is one of the largest costs of Target's business.

Query up to six different credit reporting agencies and data providers in real time (while the guest is standing in line). Even with manual review, it can take less than a minute. Pretty amazing.

Visa: average FICO is 785, the average credit limit is $7200, none offered below FICO of 660 (offered guest card instead),

heavily aimed at superprime (720+) customers. Biggest spenders are those who are enrolled in the school rewards program.

Red Card: average FICO is 625, average credit limit is $300 -- only 2% of their credit lines are at the red card level

They use a mix of proprietary models from external agencies, plus in-house models.

They do do CLDs, btw.

They purchase triggers from credit reporting agencies (to let them know when bad things happen so they can re-rate customers).

They close accounts that are inactive for 18 months and those that were never used.

Lower average balances -- 1/2 industry average -- due in part because they don't offer balance transfers or convenience checks.

They don't offer teaser rates nor do they charge over-limit fees.

50 minutes: Why the Red Card?

For guests who wouldn't qualify for Target Visa.

Largest source of Target Visa cards is continuously select from seasoned Target guest card accounts.

Timeline from Delinquency to Chargeoff

Chargeoff in 180 days per guidelines (Regulation Z, I think).

Like many retail-cobranded cards, heavy retail usage

Discourage cash withdrawals.

Candidly, the card is used a lot at Wal*Mart (presume they mean Visa). They profit from the interchange fee on those transactions.

Mostly, their guests don't need another line of credit, they're more interested in the loyalty program (especially school).

The OCC change of minimum payment for delinquent cardholders is having an effect on delinquency levels. "There's still just a lot of noise in our aging buckets."

Wal*Mart customers really like Wal*Mart. It's an unfortunate truth. :)

Don't see an Amex cobrand in the future.

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Damn you have to be in the 720 range to receive their Visa Card. Considering it's nowhere as good as prime bank cards which aren't quite as strict, I find that silly.

They must look at more than score. I have a Target Visa with a 2yr old BK7. Scores roughly in the 685-710 range, depending on the scoring model.

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Visa: average FICO is 785, the average credit limit is $7200,


Yeah, I thought that was both a really high FICO and a really high average limit, especially having seen what they have in creditpulls.

You'd think the interest rate would better reflect that... the lowest they offer is 13.24%.

My guesses:

1) They are trying to discourage revolving.

2) Customers with FICOs that high PIF>

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You should read it again. It said nothing about having to be 720+ to get it. It said none are offered below 660.

It also explains (and makes me feel less ancy) why I didn't get a Target Visa upgrade. My FICO scores range between 587 and 647 -- but have never been over 660 (in recent memory at least).

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