How To Get A Merchant Account With Bad Credit

If your business has bad credit, you may find yourself getting denied for standard merchant processing accounts. However, Adaptiv Payments specializes in processing for high-risk businesses, including those with poor credit or that operate in high-risk industries. Our flexible underwriting requirements, competitive rates, and personalized services help you realize your business potential even if you’ve struggled with revenue issues in the past.

This article will explain how to get a merchant account with bad credit, including practical strategies for selecting the right processor and improving your credit so that you can access the best rates.

What Causes Bad Credit

Traditional banks and credit unions prefer to work with companies with high credit scores because they are considered low risk: they pay their bills on time, manage their credit responsibly, and have a diverse credit mix. The opposite is true of those with low credit scores.

A FICO score below 580 is generally considered bad credit. In Canada, bad credit is anything below 560. Having a low score can make it more difficult to open a business bank account or find a good payment gateway. It also likely means you’ll have to pay more fees.

Bad credit is caused by a few different factors, including:

Missed Payments: Your payment history accounts for up to 35% of your score, making it a significant factor in low credit scores. One missed payment can stay on your credit report for up to seven years. If it is more than 30 days late, it could drop your score by up to 100 points.

Loan Default: Defaulting on a loan is a major reason for poor credit history among business owners. This means that you missed more than one loan payment in a given time period.

High Credit Utilization: Generally, using more than 30% of your available credit is considered high utilization. Gaining access to new lines of credit can help, but it may be challenging if other factors are damaging your score.

Hard Inquiries: This accounts for about 10% of your score and usually only causes a small dip. However, if you opened multiple new lines of credit in a short time, banks may label your business high risk.

Account Closures: Closing an account reduces your available credit and can shorten your credit history. Banks may close accounts due to fraudulent transactions, high chargeback rates, or default.

Understanding credit scores can help you rebuild trust with financial institutions and improve your financial management. If you have significant issues, you may want to work with a credit repair company.

How Bad Credit Affects Online Payment Processing

The primary difference between a standard account and a bad-credit merchant account is that high-risk merchants will pay much higher transaction fees. For example, credit card processing fees can reach 10% for particularly risky transactions, such as card-not-present transactions.

Another significant issue is fees for chargebacks. For average or low-risk merchants, this can be as low as $15, but a high-risk merchant account may have charges up to $100.

Payment processors do this because they are concerned about defaults or high chargeback ratios. These fees help protect them against losses and signal that the processor doesn’t trust you.

If your credit is very low or you have had serious fraud issues in the past, you may not be able to accept credit card payments, which can restrict your income.

To better understand the difference between the accounts, consider this table of standard accounts versus bad-credit merchant accounts, particularly what bad-credit merchants may have to pay.

Why Do You Need a High-Risk Merchant Account for Bad Credit?

There are two reasons a merchant may pursue high-risk merchant accounts. The first is that they operate in a high-risk industry subject to strict regulation, with excessive chargeback rates or potential fraud. These include highly regulated industries like CBD, nutraceuticals, firearms sales, and travel. Another common user of high-risk processing are companies whose business model relies primarily on subscription billing, like online gambling companies.

The second reason is that the merchant has less-than-perfect credit, even if they are not in one of those industries. A few providers offer high-risk merchant services designed to keep you processing payments while you rebuild your credibility.

Being able to take credit cards and mobile payments is crucial for success in the modern world, as many shoppers may abandon their carts if they learn that they have to pay in cash. As such, working with high-risk payment processors can help you build sustainable business growth, too.

Benefits of High-Risk Credit Card Processing

A high-risk merchant account offers significant advantages for businesses that may have been rejected by other processors. Benefits of of a bad-credit merchant account include:

• Multiple Payment Methods: You can accept credit card payments, debit card transactions, ACH processing, and even digital wallets like Apple Pay and Google Pay.
• Global Reach: Expand your business by entering new markets without switching processors.
• Fraud Prevention: Payment solutions like Adaptiv Payments also offer advanced fraud detection and real-time monitoring so you’re always sure
• Multi-Currency Support: Accept payments in multiple currencies, ideal for eCommerce businesses seeking to expand their operations.

Working with a trusted payment processor like Adaptiv Payments can be invaluable for your business. Our payment solutions include competitive rates, personalized support, and adherence to the highest industry regulations. Contact us today for more detailed information about our services.

How to Apply for a Merchant Account With Bad Credit?

To apply for a high-risk merchant account with bad credit, follow these steps.

Review Your Credit Report: Examine the transaction history and dispute any unfair charges. You may also want to work with a debt relief provider so that you can have the highest credit possible before applying.

Collect Your Business Documentation: Include your business license, formation documents, and information about your business structure. You will also need proof of ID for the business owner.

Gather Financial Records: You’ll need at least three months of bank statements from all accounts, including your business checking account and any investment accounts. Include processing statements from any other processor, if available.

Choose the Right High-Risk Processor: Adaptiv Payments has been a key player in the high-risk space for years, but there are additional options.

Compare Options: Look at the monthly fees, early termination restrictions, and reserve requirements.

Be Transparent About Your Credit: Be prepared to discuss the reason for your credit score and explain how you intend to improve your reputation with the credit bureaus.

Maintain Steady Cash Flow: The application process often takes a bit longer for a high-risk merchant account. Throughout this process, focus on building goodwill with customers and finding new revenue options.

Tips to Improve Credit Before Applying

Even if you need a high-risk merchant account, improving your credit score is still valuable, as it can help you qualify for lower rates and better benefits. Rebuilding your credit can be a difficult process that requires both short-term and long-term action.

Short-Term Strategies

• Avoid new inquiries. Don’t apply for new lines of credit until you have resolved any issues.
• Dispute errors on your credit report, working with a credit repair team if necessary.
• Pay any bills in collections if possible. Ensure all bills are up to date.
• Negotiate a payment plan for delinquent accounts.
• Become an authorized user on a business partner’s account, especially one with a longer credit history.
• Get a secured line of credit, which sets your limit based on an initial deposit.
• Keep old accounts open and pay any defaults on them to keep your credit history.

In general, it takes at least six months to make a significant difference in your score, so planning ahead can help you get your accounts in good shape before applying. Once you’re ready, employ these more long-term strategies.

Long-Term Strategies

• Pay down high balances on a regular basis to reduce your credit utilization.
• Consistently pay your bills to prevent bad marks on your credit.
• Request higher limits on existing lines of credit to improve your utilization ratio without new inquiries.
• Continue improving your cash flow so you can limit your credit utilization to the necessities.
• Set up recurring payments so that you don’t accidentally miss a bill.
• Ensure you are putting small charges on every credit card so that the line isn’t closed, then pay it off right away.

Common Challenges When Applying With Bad Credit

Unfortunately, getting a high-risk merchant account does come with downsides. Preparing for these ensures that you will have a smoother application experience and won’t be surprised by any of the challenges you may face.

Higher Reserves: You may be required to keep a certain amount in a rolling reserve, meaning it will not be accessible for 30 to 180 days. This may be removed if you can show positive cash flow, so continue building your business.

Stricter Underwriting: You will have to provide extra documentation and may need to explain certain parts of your credit report to the processor. Consult with one of their professionals ahead of time so that you have your application packet ready; this can reduce the underwriting timeline.

Limited Payment Options: You may not be able to offer every payment option to your customers depending on the processor’s restrictions and its relationship to payment gateways. Decide which payment options are the most important to you and shop for these when choosing a processor.

Higher Fees: You may pay more fees per transaction, including card processing and transaction fees. There may also be higher penalties for chargebacks. Ask the processor about these rates ahead of time and determine how much it will impact your cash flow.

Longer Contracts: Some processors will require you to sign a three-year contract instead of a yearly one to ensure they can recoup any losses.

How Adaptiv Payments Supports Businesses With Bad Credit

Adaptiv Payments specializes in helping businesses thrive through quality, comprehensive high-risk merchant accounts. Our flexible underwriting requirements emphasizes your business’s potential rather than focusing entirely on credit scores, making it easier to qualify.

Getting started with our payment gateway is quick and simple. Our team is here to provide you full support throughout the process, ensuring that everything is working on day one. We have years of experience in high-risk industries, including CBD, travel, nutraceuticals, and more.

See how much more pleasant payment processing can be when you work with an experienced team focused on helping you succeed.

Conclusion

Securing a merchant account can be challenging if you have poor credit. However, your credit score isn’t permanent; it can be fixed through persistence and partnership with a good processor.

If your company has a low credit score, Adaptiv Payments can help. We have flexible, personalized high-risk merchant accounts that balance good rates with expert service. Contact us today to discuss your needs and receive a custom quote.

FAQs about Getting a Merchant Account With Bad Credit

Can I get approved for a merchant account with a low credit score?

Yes. However, you may need to work with a specialized processor, especially if you are in a high-risk sector.

What documents are required when applying with bad credit?

You will need business documentation, bank statements, and processing statements. The underwriter may ask for additional information about your credit report.

Do high-risk merchant accounts help rebuild business credit?

Yes. Consistently paying your bills and maintaining financial stability can improve your credit. A clean history from your account provider can also help you secure new loans.

How long does it take to get approved for a bad credit merchant account?

Some businesses can be approved in as little as 3-5 business days, while others may take several weeks. We will keep you updated on your application process and explain what further documentation you may need.

Are there industries that are automatically considered high-risk?

CBD, nutraceuticals, travel, online gambling, online pharmacies, and adult entertainment are all considered high-risk.

Can I switch from a high-risk merchant account to a standard one after improving my credit?

Yes, this is possible. However, you should consider keeping the account open to improve your credit score, as your credit history also influences your score. You may be able to negotiate for lower rates with your current processor rather than switching processors. Additionally, some processors charge early termination fees.