Banks, creditors, and underwriters take credit scores into account when doing the KYC (Know-Your-Customer) underwriting process for opening a merchant account. Businesses with bad credit are usually automatically tagged as high-risk, and often rejected. Banks and payment processors have concerns about partnering with some businesses if merchants are unable to pay bills or have other financial problems.
For these bad credit merchants to start accepting credit or debit card payments again, they first need to find the right high-risk credit card processor. A specialized payment processor for the high risk industry will help merchants to find the best financial institutions to help improve their chances of being approved for a high risk merchant account.
Individuals applying for payment processing through a bank with a credit score of 580 or less are considered bad credit merchant accounts. This means that applying without an expert to help you dramatically decreases your chances of ever getting approved. Merchants will also have to apply through the proper channels to receive consideration by underwriters that understand the problem and can provide a solution.
In this article, we will walk you through the step-by-step process on how merchants with bad credit can get that nod from a payment processor and begin accepting credit and debit payments.
Payment processing for high-risk merchants
When your FICO score is low or you have filed for bankruptcy, you become a high-risk merchant right away. Similar to other financial products and services, your credit report is a primary factor in banks deciding if they want to work with you. Anything that might be seen as questionable or troublesome could become a reason for concern.
With over 90 million Americans falling into the bad credit category, real solutions for acquiring a bad credit merchant account are now available. Merchants need to realize that bad credit is an issue for payment processors and where they can look for trustworthy solutions.
A merchant account will function in the same way as a short-term loan from the bank’s credit card processor. This means that any mishaps resulting in funds being refunded or charged back will directly be taken from the merchant’s bank account. This is why a bad credit merchant account can be such a high risk for the payment processor.
Credit card processors generally billing the monthly fees accrued by merchants the following month, making it essential for merchants to be able to cover the costs. Businesses unable to cover the fees generated on a merchant account will risk account closure and/or even being added to the TMF Match List maintained by the payment processing industry.
Merchants without good or excellent credit will need to understand that there might be added costs to the merchant. This can include higher fees, reserves, and even slower payouts. Depending on what payment processor accepts a bad credit merchant account, the fees will vary depending on the perceived risks.
How to get merchant account with bad credit?
Merchants that know they have lower than desirable credit should begin by searching for a bank or payment processor willing to work with this type of client. Merchants that try to go the traditional route of applying for a merchant account will soon learn after a few denials that credit checks will quickly stop the underwriting process. Looking for a payment processor specializing in bad credit will save merchants time from the start.
One of the best ways to be accepted for a merchant account with bad credit is to have a high deposit amount. This shows commitment in covering up for the possible refunds, chargebacks, disputes or other fees. However, this is not a guarantee to receive approval for a merchant account. Merchants will still need to consult with an expert payment processor that mainly deals with high risk merchants and see what options are available for their situation.
If merchants are unable to secure a direct merchant account with a payment processor, they can opt for a sponsored or aggregated processor. While the rates, payouts, and overall terms are not as favorable as a direct merchant account, these processors will assume part of the merchant’s risk. This increased liability could potentially cost processors money, thus making these more expensive solutions.
Generally, there are two ways as to how you can apply for a merchant account. This is through a traditional processor or with a third-party processor. Just know that whatever the case, you will likely have to go through a credit check of some sort unless you partner with an offshore payment processor. While approval rates will be high for these types of payment processors, the costs are exorbitant while the reliability and stability of their services are OK at best.
Get Started Today with Your Bad Credit Merchant Account
No matter what your current credit state is, you can always turn your bad credit around. Like most things, over time credit scores can and will recover as long as the proper steps are taken by merchants to fix prior mistakes.
In the meantime, as merchants are working to fix their personal credit, there are options for businesses to start accepting payments. Whether it’s searching domestically for a bank willing to extend services or going through a payment aggregator that charge you a high premium to access to their payment network. There are a number of options available that merchants can look into.
While you’re working on fixing your credit, merchants can contact the experts at Allied Payments to help get you started with accepting card payments today. Our team of payment processing professionals can help you find solutions to fit the needs of your business and help you get started on the road back to a merchant account.