A merchant with a poor credit score, whether due to a recent bankruptcy, a tax lien, or any other reason, is automatically classed as a “high risk” merchant, and most prominent banks and merchant services firms would refuse them credit card processing services.

Many merchant services organizations refuse to engage with merchants with weak or unfavorable credit ratings for a straightforward reason: they only work with “low risk” merchants. They will not work with “high risk” (or even “mid risk”) merchants.

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Fortunately, many businesses specialize in working with high-risk clients and may assist you in obtaining a merchant account as someone with a bad credit merchant account. We’ll tell you up front that it’ll be more expensive. Expect to pay much higher processing rates, account for maintenance costs, and you’ll almost certainly be required to sign a long-term contract. 

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However, working with a high-risk expert may be helpful to your company’s growth, mainly because they’re typically the only method to take credit and debit card payments from your consumers rather than relying only on cash.

You must meet specific requirements when qualifying for an adverse credit merchant account.

Apply for a poor credit merchant account online immediately. Filling out an online application is the first step for merchants. Merchants must also submit the following things to processors and underwriters in addition to the application:

• A government-issued ID, such as a driver’s license, is required.
• A bank letter or a voided check that has already been printed.
• Three months’ worth of bank statements is required.
• If appropriate, three months of the most current processing statements.
• An SSN (Social Security Number) or an EIN (Employer Identification Number) (Employer Identification Number).
• A fully functional, secure website.

Chargeback ratios must be less than 2%.

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What to keep in mind during the application process

Operations must demonstrate to processors and underwriters that they are running genuine, reputable businesses during the merchant account application process. Underwriters evaluate risk by considering a variety of criteria, including whether merchants follow all rules and regulations.

The following are some of the factors that influence risk:

• The creditworthiness of a business.
• History of credit card processing.
• Statements from the bank.
• Website of the company.

The variables will negatively influence a site’s applications if it does not have good privacy and refund policies established. Risk is further increased by a negative bank account balance, unpaid invoices and late payments, and a history of high chargeback rates.

The most uncomplicated strategy to prepare for an underwriter’s evaluation is for a merchant to pay off all outstanding bills and obligations, have a large amount of money in the bank, and have a shareholder in the company with the best credit history apply for a poor credit merchant account.

Merchants must demonstrate to processors and underwriters that they are not taking an unnecessary risk by issuing them a negative credit merchant account to boost their chances of acceptance.

Why are chargebacks so common among merchants with bad credit?

When it comes to poor credit merchant accounts, underwriters have their work cut out for them, as previously stated. Businesses with bad credit already have bad credit and low FICO ratings. There’s a danger that things won’t work out again because a bankruptcy or tax lien is already a sign of a faulty company plan. Clients are more likely to challenge credit card charges when a company strategy is incorrect. A merchant might not have the competence of staff to deal with customers who say they didn’t make or don’t want the services they paid for.

Chargebacks are also more common on purchases with higher price tags. Due to the high cost of inadequate credit merchant services, an unhappy, cash-strapped customer may challenge a charge to save money.

Calculate chargeback ratios – don’t ignore them.

Calculating a company’s chargeback ratio is a brilliant place to start if you want to keep the rate low. The number of transactions divided by monthly transactions yields a chargeback ratio. A merchant with 500 transactions and ten chargebacks in a month, for example, would have a chargeback ratio of 2%. The amount of chargeback has no bearing on the ratio in any manner.

Generally, a merchant that processes hundreds of transactions per month is better off than one that processes less than 100 transactions per month. As a result, maintaining high transaction volumes is critical. Businesses with a high number of transactions, on the other hand, have a lot more leeway and can handle a few extra chargebacks.

Chargeback ratios must be kept low.

Chargebacks are not commonly caused by fraud or stolen credit cards. Instead, the majority of chargebacks are caused by dissatisfied customers or consumers who opt to pay for services after receiving them. Unfortunately, chargeback causes are seldom a concern for processors or credit card issuers; instead, they focus on merchants maintaining chargeback percentages below 2%.

Chargebacks may be kept to a minimum by providing complete reimbursements to customers. Because a refund is merely a one-time financial loss rather than a strike against the merchant account, it is far more cost-effective than a chargeback. For example, instead of discussing the fee and the rules of the transaction with a disappointed consumer, a customer support person could immediately provide a complete refund. After sending the refund and receipt to the consumer, the merchant should try to sell a new paid service. This approach eliminates the initial transaction’s chargeback risk and allows the merchant to process it in the long run.

Conclusion

Credit is an ephemeral concept. You may go from having good credit to adverse credit in just a few years. You have a distinct advantage over business owners that operate in an inherently high-risk industry as a negative credit merchant in that you can improve your company’s credit score over time. You may eventually qualify for a low-risk account, saving you significant money on credit card processing fees. With time and an intelligent approach, you may build a good processing history and increase your business’s credit score to the point where you won’t need an expensive, high-risk merchant account anymore. Best of luck!