Bad Credit? 4 Ways It Affects Your Merchant Account Application - DirectPayNet

Bad Credit? 4 Ways It Affects Your Merchant Account Application

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While you’re building your small business, it can be challenging to get the financing you need. Then when you’re finally ready to scale up and grow your company, you realize a crucial element is still lacking:

You need a way to accept payments for the business.

This means obtaining a merchant account, but a lot of merchants are concerned about their bad credit history, wondering if it makes getting a merchant account challenging or even impossible.

We can safely say it’s not impossible to get a bad credit merchant account, though it does come with its own challenges.

Here are 4 ways bad credit affects your merchant account applications and what you can do about it.

1. Bad Credit Impacts Startups

If you’re a startup or small business owner, getting a merchant account to accept credit card payments can be a challenge. Your bad credit can make it even harder to get approved for a merchant account.

Startups are already a risk to processors and acquiring banks. They have no history in any sense of the term, therefore they have very little evidence that can be used to backup their business claims and goals.

If all you have is a low personal credit score or bad business credit and it’s on the lower end of the scale, it’s not very appealing to merchant account providers.

Here are a couple of scenarios you can expect:

Your application will be denied. With low credit scores, the processing company will likely deny your application outright. This is because they don’t want to risk losing money on a high-risk customer who won’t pay their bills on time or at all. Some companies will allow you to apply for an installment plan or give you time to improve your score before approving any transaction volume. Others will simply refuse to work with anyone with less than perfect credit scores.

A longer wait. You might have to wait longer for approval than others who apply for merchant accounts at the same time as you do (if the company allows this). Some companies check every applicant’s credit score before approving them or denying them

2. Bad Credit Impacts Low Volume Businesses

Startups get the short-end of the stick. If you already have a business running and are applying for a new merchant account, you’ll run into a few walls but the likelihood of getting approved increases.

Because you already have processing history, your credit score is slightly less important. But it might affect pricing and the credit card companies you can use.

Low volume e-commerce businesses might pay more. low-volume businesses are perceived as riskier than high-volume ones by credit card processors because they could potentially go under and stop processing payments at any time. Low sales volume could also indicate there’s little profit potential in the business, which means they might not be profitable enough to take on the added expense of paying high transaction fees.

You may not be able to take certain types of cards. Some processors don’t allow businesses that have low volumes or poor histories of customer service (like late payments) from accepting credit card transactions from certain networks like American Express or Visa.

3. Bad Credit Affects Business with No Processing History

This includes startups and new businesses, of course, but also other types of businesses that maybe only dealt in cash or accepted some other type of payment that didn’t result in processing history. Sometimes that includes debit cards, ACH, echeck, and other payment solutions capable through a payment gateway.

If you’ve never processed payments before, it is going to be difficult for a credit card processor to determine whether or not you are going to be able to pay your bills on time each month. The only way for them to do this is by looking at your personal financial records in order to gauge your ability to handle debt.

This means that if you have bad credit on your personal accounts, it will then impact their assessment of your business’ ability to handle debt as well.

Businesses with no credit card processing history might be able to expect denied applications, stringent terms, or higher fees.

4. Bankruptcy Affects the Processor’s Decision

If you have filed for bankruptcy before and that information is on your credit report, it may hurt your chances of getting approved for a merchant account.

If the bankruptcy was recent, lenders may also view this negatively as well. However, if it was several years ago and there has been no recent delinquencies or new accounts opened since then, then the impact will be lessened or even gone completely over time.

Most processors won’t deny applications outright if there is any history of bankruptcy or financial troubles; instead, they’ll simply ask for more information about what happened and why.

If you’re honest about your situation and show them that you’ve recovered from it by rebuilding your FICO score over time, then there’s a good chance they’ll still approve you for an account — especially if you have a strong business plan in place that shows how much money you’ll be bringing in each month from sales made through the card reader or POS system.

Once you have processing history, bad credit is less important.

The most common thing that can affect your application is having excessive chargebacks in a short period of time.

This will usually result in an inquiry being done on your account, which means that the processor will look at your entire account and make sure everything looks good before they approve your application. If there are any issues with your account or if it looks like things might not be going well for you in the future, they may deny your application or set up some sort of monitoring program.

This doesn’t mean that once you have payment processing data that bad credit won’t matter anymore – it just means that it won’t be as big of a factor in whether or not they approve your application.

Here are a few things you can do to increase approval odds on your bad credit merchant account.

First, here are two tips you should memorize:

  1. Never trust instant approval account providers.
  2. Never trust no credit check providers.

Pay Off Your Debt

It’s annoying to hear and everyone says it, but it really is one of the better solutions.

When you apply for a new account, financial institutions look at your past history and make judgments based on what they see. If you have paid off debt, this shows that you’re taking responsibility for your actions and making an effort to improve your financial situation. It also proves that you’re serious about using their services in the future, which is always good for business relationships.

Get a Co-Signer

A common way to get around bad credit is to go with a co-signer on your merchant account application. A co-signer is someone who agrees to pay back the money in case you don’t. This person can be a friend or family member who has good credit and is willing to help you out.

The problem with this solution is that the co-signer does not get any of the profits from your business. You’re essentially asking them to put their name on the line for nothing in return. That’s why most people in this situation go with a guarantor instead.

A guarantor is similar to a co-signer, but they do get paid for their services. A guarantor is someone who provides funds upfront so that you can start up your business without having any personal assets tied up in it.

In essence, they are taking responsibility for your business debts if anything goes wrong and ensures that your business continues operating smoothly while giving you time to rebuild credit history so that when you’re in good standing, eventually you can apply for merchant services without needing one.

Open a High-Risk Merchant Accounts

Some payment processors will turn down businesses with bad credit automatically. Whether you have poor credit, you’re an entrepreneur, or work in a popular online business industry like CBD, you’re considered high-risk business.

Your best bet is to work with a high risk payment processor who will be eager to help you set up the right merchant account for your business.

Using a high-risk merchant account provide like DirectPayNet will connect you with high-risk processors and banks that can support your business and your current credit standing. Sometimes these are called bad credit merchant accounts.

This is the best way to get approved. Contact us today to start the application process and start building processing history.

About the author

As President of DirectPayNet, I make it my mission to help merchants find the best payment solutions for their online business, especially if they are categorized as high-risk merchants. I help setup localized payments modes and have tons of other tricks to increase sales! Prior to starting DirectPayNet, I was a Director at MANSEF Inc. (now known as MindGeek), where I led a team dedicated to managing merchant accounts for hundreds of product lines as well as customer service and secondary revenue sources. I am an avid traveler, conference speaker and love to attend any event that allows me to learn about technology. I am fascinated by anything related to digital currency especially Bitcoin and the Blockchain.


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