I admit, I’m a Target (or Tar-shay as the faux-uppity call it) fanatic. I’m at the mass market retailer at least once a week, spending $50 or more. That’s not counting the money I spend on shoes.
Apparently, not everyone shares my shopping habits. After conducting a study, Target discovered that people with a Target Visa card, which can be used anywhere Visa is accepted, are not spending as much in the store as people who have just a Target credit card. In an effort to get people to buy more at Target, the store stopped issuing Visa cards as of April 30.
The bloggers at Bankaholic.com believe the decision is also an attempt to recoup significant losses from customers who defaulted on their store-issued credit cards — and they’re probably right. According to their report, Target lost more than $900 million over the past two years from customers who defaulted on their Target Visa and Target store credit card payments.
In a previous effort to recoup some of those losses, the store previously increased its interest rates from 11.24% to 20.24% up to 22.29% for some card holders.
Will This Affect You?
We’ve noted on this blog a few times that a store-branded credit card isn’t necessarily the best way to build your credit. The Orchard Bank Classic MasterCard is a great credit card for people just beginning to establish a credit history. If you’re a student, it’s smart to start your financial life with a Discover student card, rather than a store-issued credit card.
No one — except Visa — has any reason to shed any tears over Target shutting down its Visa credit card program. Target is the third largest company that issues Visa cards to its customers, with more than 23.9 million Target Visa cards currently active.
Visa also recently lost the Macy’s account, when the upscale retailer switched to American Express-issued store credit cards.
Current Target Visa Customers Beware
The change does not currently affect existing Target Visa customers, many of who have already been saddled with higher interest rates than they had when the first signed on. Target Visa card holders. Target Visa card holders account for 95% of Target’s total outstanding loans, with only 5% falling on Target credit card holders. This change will, eventually, force that number to decline as new customers cannot accrue new debt with a Target Visa card.
Current Target Visa customers can keep their card and use it as before. This will not affect existing Visa cardholders — yet. Although company reps haven’t even hinted at the possibility, at some point in the future Target could close all Target Visa accounts to prevent any additional Visa debt.
If this happens, you’ll have to continue to make minimum monthly payments but will no longer be permitted to use the card. If you’ve had the card a long time, or if the Target Visa is one of only a few credit cards in your wallet, this could adversely affect your credit score. Additionally, if you have a high credit limit and don’t carry a balance on the card, your debt-to-available-credit ratio (a number that weighs heavily in determining your FICO score) could suffer.
Target could also make another change — equally dangerous to credit scores — and reduce cardholders’ credit limits as they pay off their Visa cards.
Of course, if Target does make any changes to existing cardholder accounts, the company will give the requisite 45 days notice by mail. As always, read your statements carefully (especially the fine print) so you’ll be aware of any changes and can plan accordingly to keep your credit score intact.