A merchant with a poor credit rating, whether due to recent bankruptcy, tax lien, or any other reason, is automatically classified as a “high risk” merchant, and most banks and leading merchant services companies would deny them credit card processing services. .
Many merchant service organizations refuse to engage with merchants with low or unfavorable credit ratings for one simple reason: they only work with “low risk” merchants. They will not work with “high risk” (or even “medium risk”) merchants.
Fortunately, many companies specialize in working with high-risk customers and can help you get a merchant account as someone with a merchant account with bad credit. We will tell you up front that it will be more expensive. Expect to pay much higher processing rates, factor in maintenance costs, and you’ll almost certainly have to sign a long-term contract.
However, working with a a high-risk expert can be helpful to the growth of your business, primarily because they are usually the only method for accepting credit and debit card payments from your consumers rather than relying solely on cash.
You must meet specific requirements when qualifying for an adverse credit merchant account.
Apply for a poor credit merchant account online immediately. Completing an online application is the first step for merchants. Merchants must also submit the following to processors and underwriters in addition to the application:
- Government-issued identification, such as a driver’s license, is required.
- A letter from the bank or a canceled check that has already been printed.
- Three months of bank statements are required.
- Where applicable, three months of the most recent processing declarations.
- An SSN (Social Security Number) or an EIN (Employer Identification Number).
- A fully functional and secure website.
Operations must demonstrate to processors and underwriters that they are operating genuine and reputable businesses during the merchant account application process. Underwriters assess risk by considering various criteria, including whether traders follow all rules and regulations.
Here are some of the factors that influence risk:
- The solvency of a company.
- Credit card processing history.
- Bank statements.
- Company website.
The variables will negatively influence a site’s applications if it has not established good privacy and refund policies. The risk is further increased by a negative bank account balance, unpaid bills and late payments, and a history of high chargeback rates.
The simplest strategy to prepare for an underwriter’s assessment is for a trader to pay all outstanding bills and obligations, have a large sum of money in the bank, and ask a shareholder of the company with best credit history to apply for bad credit. merchant account.
Merchants must demonstrate to processors and underwriters that they are not taking unnecessary risk by issuing them a negative credit merchant account to increase their chances of acceptance.
When it comes to low credit merchant accounts, underwriters have their work cut out for them, as discussed earlier. Businesses with bad credit already have bad credit and low FICO scores. There is a risk that things will no longer work because a bankruptcy or tax lien is already a sign of a flawed business plan. Customers are more likely to dispute credit card charges when a business policy is incorrect. A merchant may not have the staff competence to deal with customers who say they have not done or do not want the services for which they have paid.
Chargebacks are also more common on purchases with higher price tags. Due to the high cost of inadequate credit business services, a disgruntled, cash-strapped customer may dispute a charge to save money.
Calculating a company’s chargeback rate is a great place to start if you want to keep the rate low. The number of transactions divided by the monthly transactions gives a chargeback ratio. A merchant with 500 transactions and ten chargebacks in a month, for example, would have a chargeback rate of 2%. The amount of the chargeback does not affect the ratio in any way.
Generally, a merchant who processes hundreds of transactions per month is better off than a merchant who processes less than 100 transactions per month. Therefore, maintaining high trading volumes is essential. Businesses with a high number of transactions, on the other hand, have a lot more leeway and can handle a few extra chargebacks.
Chargebacks are usually not caused by fraud or stolen credit cards. Instead, the majority of chargebacks are caused by dissatisfied customers or consumers choosing to pay for services after receiving them. Unfortunately, the causes of chargebacks are rarely of concern to processors or credit card issuers; instead, they focus on merchants who maintain chargeback percentages below 2%.
Chargebacks can be minimized by providing full refunds to customers. Because a refund is only a one-time financial loss rather than a strike against the merchant account, it’s much more profitable than a chargeback. For example, instead of discussing transaction fees and rules with a disappointed consumer, a customer service person could immediately provide a full refund. After sending the refund and the receipt to the consumer, the merchant must try to sell a new paid service. This approach eliminates the risk of chargebacks from the initial transaction and allows the merchant to process it for the long term.
Credit is an ephemeral concept. You can go from good credit to bad credit in just a few years. You have a distinct advantage over business owners who operate in an inherently high risk industry as a negative credit trader in that you can improve your business credit rating over time. You may eventually qualify for a low-risk account, which will save you a lot of money on credit card processing fees. With time and a smart approach, you can build a good processing history and boost your business credit rating to the point where you no longer need an expensive, high-risk merchant account. Good luck!