Sears is struggling (WSJ: requires subscription) to make its credit card division profitable:

Among other reasons why some analysts and investors fret: Sears's credit clientele seems more troubled than the average American. "It's one we would expect to experience more credit challenges," says James E. Moss, an analyst with Fitch Ratings. Bankruptcies among the retailer's credit-card holders soared 20% in the third quarter from year-earlier levels, and vaulted 26% more in the fourth quarter. That is far higher than the 7.8% increase recorded nationwide for personal bankruptcies in the year ended Sept. 30. Sears contends its increase is represented in dollars, not individual filers, and isn't out of line with the national statistics. (The national statistics, from administrators of the U.S. court system, come only in the number of filings, not dollar amounts.)

Sears says its customers are no less creditworthy than average Americans. The company says its active MasterCard customers have an average credit score compiled by credit specialists Fair, Isaac & Co. of 720, which roughly places them in the middle of the pack of American consumers. But Sears declines to release the scores for its inactive MasterCard accounts or for its proprietary blue card. Sears has some 60 million credit accounts, of which 25 million are active, meaning they have been used in the past year. Of those 25 million, roughly 16 million are Sears blue cards; the rest are gold MasterCards.

It is difficult to compare Sears's credit-card operations with those of rivals. Most credit-card issuers begin to write off customer accounts once they are delinquent for 180 days, but Sears doesn't take action until 240 days have passed. And at Sears, a customer who is 240 days behind can become current by making two payments, each of as little as 1/45th of the outstanding balance. Sears declines to say what percent of its accounts has undergone this so-called re-aging process.

Looks like Sears isn't ready to face up to reality yet. Which is bad news since credit represents a bigger chunk of their business than even the retail side:

Sears is the third-largest MasterCard issuer in the world, trailing behind only Citigroup Inc. and MBNA Corp., according to Nilson Report, an industry periodical in Oxnard, Calif. Sears launched the card just over two years ago, part of an attempt to counter a loss of market share by its proprietary "blue" card, which is good for use only in Sears stores. Thanks to the two cards, Sears's credit and financial-products segment provided $1.5 billion, or 60%, of the company's operating income in the fiscal year that ended Dec. 28. Its retail segment, by comparison, provided just $1.16 billion.