Does Bad Credit disqualify You From a Merchant Account?

With all the restrictions and disqualifications bad credit can bring a business looking to set up financial resources, it’s no surprise so many owners of small companies question whether they can get merchant accounts before improving their credit situation. After all, bad business credit can keep a company from accessing cash draw credit lines and business loans. It’s also well known that your company’s credit affects what it pays in insurance premiums, just like your personal credit affects your personal insurance rates. Luckily, bad credit is not usually a consideration when merchant services providers decide whether to approve an account or not. There are times when credit factors come into play, but usually not when determining eligibility for a program.

Bankruptcies and Company Ownership

While your personal and business credit scores will not keep you from finding a merchant account provider, bankruptcies on the credit report can keep you from working with certain providers. It varies from company to company, but typically a personal bankruptcy within the last 10 years is a red flag for service providers. Business bankruptcies can elicit a range of responses depending on how they were resolved, so they are less predictable.

Another way your credit is used when setting up a merchant account is to verify your ownership of the company. If you have a corporation or LLC, most service providers will run your personal credit as a way of ensuring you are who you say you are. If you have a sole proprietorship or you are applying on behalf of a limited partnership, your personal credit will be a bigger factor, but your business credit is still important.

So What Does Your Business Credit Score Affect?

Bad credit merchant account services are only really different from their counterparts for higher-scoring customers in one way, and that is the merchant discount rate. This rate reflects the amount you pay for each transaction. Since processing electronic credit transactions involves risk for the processor and card issuer, customers they perceive as higher risk will find it reflected in the cost of service. Like with insurance, it’s not necessarily make or break but it can make a big difference for your bottom line. The lower your merchant discount rate, the less you pay every time you run a card.

Card processors have a wide range of rates set up in tiered schedules and plans that are complex enough to be worth breaking down in another article, so a single merchant can have several fee levels they pay depending on the card type and issuing bank, but overall the rate is typically one to three percent. Companies with credit issues will likely pay a little over three percent for their most expensive transactions, or there may be another requirement like a surcharge. If you find yourself being quoted prices that are drastically higher than this typical rate, it’s probably not a good deal, even if your company has credit problems.

Does a Company Have Options if Service Is Denied?

There are always other processors to try out if you get denied at your first choice for service. If the denial is due to a bankruptcy or you see multiple denials from different processors without an explanation, there are also alternative payment processors to consider. Companies that specialize in niche payment processing needs are often more willing to work with those who are having trouble getting approved at their competitors. The most common alternatives are overseas processors and high risk processors. Both have higher costs than average for the industry, but both are also built to serve companies that have needs traditional processing agreements can’t fulfill.

High risk payment processing is offered to help connect companies with bankruptcy issues to merchant services, but that’s not all. This kind of payment processor is also favored by companies that see a lot of chargeback fraud and those in industries where financial fraud is relatively common, like some kinds of eCommerce. Industries that are perceived as higher risk in general also find themselves working with high risk processors a lot of the time even when their own operating history doesn’t bear out that perception.

International payment processors can also be useful for companies that experience a high rate of attempted fraud, although their tools for combating the issue are often less developed than those offered by high risk processors because it is not the main focus for an international processing company. International service is useful when you anticipate a lot of business from several different countries with issuing banks in each one, as well as when your business is legal in the jurisdiction where it operates but sporadically criminalized in other jurisdictions within your own country or other countries. That’s because international processors are not just built for dealing with international transactions, they’re also based offshore.

Picking the Right Processor

It’s all about comparison. Check out the rates and plan types out there, and then pick the one that most obviously wants to make itself cost effective for your company.

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