Guide To Bad Credit Merchant Accounts For Small Business

Getting approved for a merchant account can be challenging if you’ve had bankruptcy or have a low personal credit score. Businesses with poor credit are considered high-risk, and many providers won’t approve them.

Bad credit merchant accounts are designed specifically for these situations. While they often come with higher fees, they provide a way for your business to accept credit and debit card payments instead of relying solely on cash.

In this article, we’ll explain what bad credit merchant accounts are, what makes a business high-risk, and the factors that affect your ability to get approved. We’ll also share tips for selecting the best provider for your business needs.

What Is A Bad Credit Merchant Account?

A bad credit merchant account is a type of merchant account designed for business owners with low personal credit scores or past bankruptcies. Because these accounts are considered high-risk, they usually come with higher fees than standard, low-risk accounts.

When Do You Need A Bad Credit Merchant Account?

Getting approved for a merchant account is a lot like getting a loan: banks and providers want to know you can handle the risk of not paying back what’s owed.

While each provider defines “bad credit merchant” slightly differently, you’ll generally fall into this category if any of the following apply:

• Low Personal Credit Score: A FICO score of 580 or below usually lands you in the bad credit category. This is especially common for first-time business owners without an established business credit history.
• Prior Bankruptcy: Personal or business bankruptcies almost always result in a high-risk designation. These stay on your credit report for 7–10 years, depending on the chapter filed.
• Outstanding Liens: Liens on your property can hurt your credit score. For example, an IRS lien for unpaid taxes is a red flag, while a lien used as collateral for a loan (like solar panel financing) may be less concerning if you’re making regular payments.
• Outstanding Judgments: Civil or criminal court judgments can significantly affect your creditworthiness until they’re resolved.

Can You Get A Merchant Account Without A Credit Check?

If your low personal credit score is the main barrier to accepting credit cards, you might wonder if you can bypass a credit check. The short answer: not really.

Approval depends on the type of account:

• Full-Service Merchant Accounts: Full-service merchant accounts typically require a thorough credit check and underwriting process, similar to a loan application.
• Payment Service Providers (PSPs): PSPs are generally easier to set up, but even they may consider your credit history in their risk assessment, especially for larger processing limits.

While there isn’t a completely credit-free path, choosing the right type of provider can make the process smoother.

Credit Checks: Merchant Accounts VS PSPs

Applying for a true merchant account is a detailed, paperwork-heavy process. Your provider (and sometimes their backend processor) will review your personal credit, business history, and financial stability. First-time business owners’ credit scores weigh more heavily, while experienced merchants with a proven track record may be less affected.

• Pros: Once approved, these accounts are very stable, with a low risk of sudden freezes or terminations.
• Cons: The approval process can take several days to a few weeks.

PSPs like Square, PayPal, and Stripe allow businesses to start accepting payments quickly, often within 24 hours. Because all users are aggregated under a single merchant account, these platforms typically skip detailed underwriting and do not require a personal credit check.

• Pros: Fast setup, minimal paperwork, and low-risk industries can start processing almost immediately.
• Cons: PSPs can shut down accounts quickly if they detect unusual activity or high chargebacks. High-risk industries are especially vulnerable to account closure.

Why “Instant Approval” Merchant Accounts Can Be Risky

The popularity of quick-approval PSPs has led some traditional merchant account providers to offer so-called “instant approval” accounts. These accounts bypass the usual underwriting process, often using just basic information submitted online.

While it may seem convenient, this shortcut comes with significant risks. Accounts approved this way are much more likely to be terminated suddenly if the processor flags any transaction as suspicious.

Even worse, your account could be added to the Terminated Merchant File (TMF, or MATCH List). Combined with a bad credit score, this can make it extremely difficult to get approved for a new account with another provider.

How To Get A Merchant Account With Bad Credit

Getting a merchant account with bad credit works much like getting one with good credit, but your options are more limited. Here’s what you’ll need to do: