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Getting a Merchant Account with Bad Credit, Bankruptcy, Tax Liens
The ABCs of Getting a Bad Credit Merchant Account
Consumer credit reporting agency, Experian, estimates that 30% of Americans have poor or bad credit, according to Experian’s 2015 Vantage Score 3.0 data. Those with bad and poor credit have scores between 300 and 600, and, also, giving them the least access to good lending opportunities.
On the other end of the spectrum, only 22% of people have excellent or super prime credit – scores between 781 and 850, according to the data. The rest of consumers fall somewhere in the middle of the two groups.
These statistics don’t take into account the many new businesses and their stakeholders who have bad credit because their businesses didn’t work out. Past bankruptcies, tax liens, and bad credit can make it seem impossible to get a business back on track. Banks and traditional financial institutions don’t want to take a risk on a business that already has bad credit. If legitimate businesses want to move in a better direction and accept credit card payments, they must turn to a high-risk processor, like eMerchantBroker.com (EMB). To apply now for a bad credit merchant account, fill out EMB’s quick, online application.
EMB specializes in high-risk merchant accounts and offers personalized payment solutions that allow bad credit merchants to succeed. Applications are approved in 24 to 48 hours. Once approved, EMB can set up chargeback management tools, a payment gateway, and fraud filters.
Requirements needed when applying for a bad credit merchant account
Apply online today for a bad credit merchant account today. Merchants can begin by filling out EMB’s simple online application. In addition to the application, merchants will need to submit the following items to processors and underwriters:
- A valid, government-issued ID, such as a driver’s license
- A bank letter or a pre-printed voided check
- 3 months of the most recent bank statements
- 3 months of the most recent processing statements, if applicable
- A SSN (Social Security Number) or EIN (Employer Identification Number)
- A secure, fully-operational website
- Chargeback ratios must be under 2%
Though EMB cannot guarantee any approvals, it does promise a quick, simple application process. In addition, EMB has a long history of working with new and existing businesses of all sizes, merchants that have been rejected or terminated by other credit card processors, as well as those with no credit, bad credit, or high chargebacks. Apply now and get approved in as little as 24 hours.
What underwriters look for during the application process
During the merchant account application process, businesses must prove to processors and underwriters that they are running legitimate, reputable companies. Underwriters assess risk by looking at many factors, including whether merchants are complying with all rules and regulations.
Some of the factors that determine risk include:
- A merchant’s credit scores
- Credit card processing history
- Bank statements
- Company website
If a site doesn’t have solid privacy and refund policies posted, the factors will negatively impact their applications. A negative bank account balance, unpaid bills and late payments, and a history of high chargeback rates also increase risk.
The best way to prepare for an underwriter’s review is for a merchant to satisfy outstanding bills and debts, have a substantial sum of money in the bank, and have a stakeholder in the business with the best credit history apply for the bad credit merchant account.
To increase their chances of approval, merchants need to show processors and underwriters that they are not taking any undue risk by granting them a bad credit merchant account.
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Why bad credit merchants are prone to chargebacks
As already mentioned, underwriters have their work cut out for themselves when they are reviewing bad credit merchant accounts. Bad credit businesses already have poor credit and low FICO scores. Since a bankruptcy or tax lien is already an indication of a bad business model, there is a chance things may not work out again. When a business model is flawed, clients are more likely to dispute credit card. A merchant may not have the expertise in-house to handle clients who claim they didn’t make or no longer want the services purchased.
Nevertheless, there are plenty of clients who have real transaction complaints but don’t know how to handle them effectively. Customers who do call to complain often get frustrated and hang up if the call or problem isn’t handled quickly or they get a business representative who lacks the necessary customer service skills. If the client is not refunded or there isn’t an otherwise satisfactory resolution, that dissatisfied client is sure to result in a chargeback.
A lack of electronic or paper receipts also is a major issue. Receipts provide customers with quick access to a retailer’s contact information. Having a receipt to refer to also helps jog a customer’s memory of the purchase.
Recurrent billing results in more chargebacks than monthly invoices. Since they don’t occur as often, when the charge turns up on a statement, it can take a customer by surprise. This can trigger a customer to contact the credit card company and dispute the charge, claiming they no longer wanted or needed the services.
Chargebacks also occur more often on purchase with more expensive price tags. Since bad credit services can be costly, a dissatisfied, cash-strapped client may dispute a charge as their ways of saving money.
Additionally, small and not very well-known businesses often lack keen business sense and customer skills needed to maintain a happy pool of customers. Smaller businesses often have even smaller staffs that can’t offer 24-hour customer service or present refunds that larger, more-established merchants may be able to entice clients with to prevent them from disputing a credit card charge.
Why chargebacks are bad
When customers call their credit card companies, like MasterCard or Visa, and disputes a charge they found on their statements, this triggers the issuing bank to initiate a dispute. This, then, forces the credit card processor and its sponsor bank to request documents from the merchant from which the transaction was made. The parties want to ensure the charge was legitimate. The tricky issue here is that the fact that the customer called to dispute the charge is more important than who actually wins the dispute. The customer complaining about the charge is a red flag for processors and sponsor banks because it usually is an indication that there is something wrong with the merchant’s business model. Every complaint gets factored into a merchant’s chargeback ratio. Bad credit merchants that keep ratios below 2% will have their merchant accounts terminated due to excessive chargebacks. This not only prevents a merchant from continuing to operate, it weakens a business’ chances of getting another account approved in the future.
Also, processors take a hit when merchants have excessive chargebacks. Credit card companies can fine processors thousands of dollars for each business that exceeds a 2% chargeback ratio. When this occurs, businesses with excessive chargebacks become are no longer profitable enough for credit card processors to continue working with them. In the end, processors end up shutting down their merchant accounts.
Credit card processors terminate the bad credit merchant accounts of those with chargeback ratios of more than 3%. Many bad credit businesses don’t realize that their chargeback ratios, whether they are won or lost, contribute to their ability to operate a business until it is too late. The bigger problem for merchants is once a processor shuts them down, it won’t be easy to get another. A past terminated account is one of the factors that negatively impacts a bad credit business when applying for a merchant account.
Do the math – calculate chargeback ratios
Figuring a business’ chargeback ratio is a good start to ensuring the rate stays low. A chargeback ratio is calculated by the number of transactions divided by the number of monthly transactions. For example, a merchant with 300 transactions and 12 chargebacks in a month would have a 4% chargeback ratio. The dollar amount of a chargeback in no way has any reflection on the ratio.
Therefore, maintaining high transaction volumes count. Obviously, businesses that have large volumes of transactions have much more wiggle room and can withstand having a few more chargebacks. Basically, a merchant with hundreds of transactions per month is better off than one that handles fewer than 100 purchases per month.
It is never a good idea to stop sales for extended periods of time when a business is experiencing low transaction volumes and high chargeback ratios.
Keeping chargeback ratios down
Fraud and stolen credit cards are not the most common reasons for chargebacks. Most of the time, chargebacks are due to unhappy clients or customers who decide they want to pay for the services after they receive them. Unfortunately, the cause of chargebacks is never a concern for processors or credit card companies, they only think about merchants keeping chargeback ratios at 2% or lower.
Keeping chargebacks can be kept low by offering clients full refunds. A refund is much more cost-effective than a chargeback because it is only a loss of a one-time dollar amount instead of a strike against the merchant account. A customer service representative should immediately offer a full refund instead of explaining the charge and the terms of the transaction to a dissatisfied customer. After the customer is sent the refund and receipt, the merchant should then try to offer a new paid service. Making this move removes the chargeback potential of the first transaction and gives the merchant’s ability to process it in the long term.
Since excessive chargebacks is due to customers not remembering or recognizing transactions on their credit card statements, merchants are encouraged to clearly display their names and contact numbers on all emails, receipts, and websites. Since transparency and open communications make happy customers, bad credit merchants also are encouraged to send automatic email receipts after transactions are complete. This is a good way to remind customers of the purchase and service.
A mitigation program can make 25% dent in chargeback ratios
A chargeback mitigation program, like the one offered by EMB, can easily reduce merchants’ ratios. Through a partnership with Verifi and its new Cardholder Dispute Resolution Network (CDRN) and Ethoca’s alert system, EMB developed a cutting-edge chargeback mitigation system for high-risk merchants, such as bad credit merchants. The elite system makes it easier to mitigate chargebacks.
Operating with banks and card issuers, CDRN enables merchants to achieve the greatest rate of chargeback resolutions while being directly involved in the process. Up to 25% of a merchant’s chargeback ratio can be trimmed by using an alert system.
By actively pursuing chargebacks, bad credit companies shield themselves from losing revenue by keep their merchant accounts in good standing.
Categories for merchant accounts
The United States and other countries assign four-digit numerical codes, known as Standard Industrial Classification (SIC) codes, to business establishments to identify their primary purposes.
Visit the United States Department of Labor to view a complete SIC list.
The Northern American Classification System, NAICS, is a list of six-digit codes used by federal statistical agencies to classify business establishments. The classification system aims to gather, analyze, and publish statistical information about similar types of businesses and what their impacts are on the U.S. economy.
Visit the United States Census Bureau to view the complete NAICS code list.
New business ventures don’t always work out. Variables that factor into the success of a business vary and may be beyond your control. If you have lingering bad credit from prior ventures or if you have filed for bankruptcy there is no easier option than eMerchantBroker.com for your merchant service needs. We can help you regardless of your FICO score, previous processing history or even bankruptcies and tax liens.
With a merchant account or business cash advance from eMerchantBroker.com you can build your personal and business credit. Having bad credit can be a nightmare; we want to do all we can to make the application processing simple and easy.
If you have bad credit, banks and traditional credit processors will shy away from you based on the past crippling your opportunity for the future, not at eMerchantBroker.com. We can approve your merchant account in as little as 24 hours.
Our specialized merchant accounts for those with bad credit can help get your business revenue stream flowing again. We can even help merchants on the TMF list, a “black list” for Visa and MasterCard accepting merchants.
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