You know a merchant account is critical to building your business but bad credit history is holding you back. It may be your business’s record or your own personal situation as the owner.
Many businesses have poor credit and low FICO scores. You are certainly not alone.
Many of the larger merchant account providers are reluctant to accept merchants with poor credit, seeing them as a potential fraud and chargebacks risk.
Even if you have had one or more applications rejected from the many merchant card processing companies, don’t despair. There are specialist merchant service providers who will consider accepting you for a merchant account.
This is called a bad credit merchant account. It is treated as a high risk merchant account, as opposed to a standard low risk account. While it may cost more, it’s worth the small extra charges to help you build a thriving business.
Additionally, while working on your approval, you also have an opportunity to rebuild and improve your credit record.
Reasons for a bad credit rating on merchant account applications
An apparently successful business may quickly suffer from what can appear to be, poor customer relations from the card processor’s point of view. They may even suspect that there is a problem.
Every time a customer applies for a merchant account, a record of such could appear on their credit profile, regardless of the outcome. Too many inquiries can lead to a bad credit history.
7 reasons why a business has a bad credit history
- A previous merchant account was terminated (TMF list, also known as MATCHlist)
- Too many customer complaints, disputes or specific inquiries about transactions
- A high ratio of chargebacks (more than 3%)
- Fraud by customers or business partners
- Tax liens
- No credit history or a low credit rating
- A previous business venture that failed leaving debts behind
When you apply for a merchant account, the acquiring bank will look at the credit history of either the business itself, the owner of the business and sometimes both, depending on the legal entity structure.
It’s understandable that your personal consumer credit rating may have taken a hit at some time. Bankruptcy usually is the most serious issue and it can sometimes take up to 10 years to repair your credit history afterwards. A history of late payments, too many credit checks by lenders, and general mild mismanagement will definitely count against you.
How to successfully apply for a bad credit merchant account
Card processors and acquiring banks apply lending criteria to merchant account applications, just as if you were applying for a loan. Basically, it’s an underwriter’s duty to accurately assess just how much risk you represent to the bank. It’s important to remember this.
Though it may be tempting to try to make your credit history appear better than it really is, you are always better off giving accurate and full information. This enables the merchant service provider to identify the best payment processing structure for your business type and current credit history.
However, you obviously want your business to look pretty good for the underwriters, it makes sense to take some precautions such as these:
6 things that help a bad credit merchant account application:
- Have funds in your bank account to show that you are adequately solvent
- The partner with the best personal credit record and financial standing should apply for the application
- Your website needs to have a clear privacy and refund policies published
- All overdue bills have been paid
- Chargebacks are being actively managed and are under 2%
- A workable customer service process is in place to handle billing queries and complaints
High risk industries require high risk merchant accounts
Regardless of the credit standing of your business or of yourself, be aware that many industries are still considered to be high risk for card processing services. Some of these are obvious, such as gambling, firearms and adult sites, but others may surprise you – such as travel and jewelry.
Find out more in this article about High Risk Credit Card Processing. Bad credit merchant accounts are often rated in the same category of high risk by card processing companies.
Documentation you need when applying for a merchant account with poor credit
In addition to having a working website, you need to have the right supporting documents and financials ready to submit. Many underwriters will ask for any or all of these:
- Letter from your bank showing bank name and address or a voided pre-printed check
- Bank statements covering the last 3 months
- Card payment processing statements for 3 months, if you have/had a merchant account
- Social Security number or Employer Identification Number (EIN, available from the IRS)
- Government-issued current ID (e.g. driver’s license)
What does it cost to get a bad credit merchant account?
Increased risk always bears increased costs. That’s how banks minimize potential losses while continuously trying to prevent fraud or chargebacks. Think of it simply as the cost of doing business.
When you get approved, these are the things you can expect that are different from a regular merchant account:
- Higher transaction fees – These vary by provider and your industry but something in the region of 3% to 10% is the norm.
- Capped transaction volume – Some payment processors may restrict your volume of card payments until you have proven that you are a reliable merchant.
- Longer settlement time – It may often take a week or more for payments to reach your account compared with around 1-3 days for regular merchant accounts.
- Larger monthly fees – Monthly or annual flat fees can be 50% more for a high-risk merchant account.
- Bigger reserve – High risk acquiring banks may insist you to retain 15% or more of the transaction values in your account as a buffer against possible chargebacks and fraud.
- Closer monitoring – Because banks and card processing companies consider the potential for fraud is greater for high risk accounts they apply more stringent checks and security measures.
Take the first step
Here at SecureGlobalPay, we specialize in bad credit merchant accounts and other types of high risk merchant accounts.
Complete our short initial application form here and our experts will get the ball rolling to find the best card payment solution for you and your business.