How To Get A Good Deal On A Merchant Account With Bad Credit
If you’ve been turned down for a merchant account because of bad credit, don’t panic. Here’s what you need to know about the role credit scores play in payment processing.
First-time business owners face a host of challenges in getting their businesses up and running, but few of those challenges can be as daunting as getting approved for a merchant account if you’ve experienced bankruptcy or have a low personal credit score. While most run-of-the-mill businesses will be classified as low-risk and have few problems in getting approved for a merchant account, there are a variety of special factors that can get you placed as high-risk. Don’t know if you qualify as high-risk? Check out our guide on which businesses are considered in the high-risk category.
High-risk businesses have a particularly hard time finding a compatible merchant services provider, as many popular providers simply won’t accept them at all.
Fortunately, there are a fair number of companies that specialize in working with the high-risk community and can help you get a merchant account. We’ll warn you upfront that it will cost you more. Be prepared to pay significantly higher processing rates and account maintenance fees, and also accept the fact that you’ll most likely have to agree to a long-term contract. Nonetheless, working with a high-risk specialist can be very beneficial to the success of your business, especially since they’re often the way for you to be able to accept credit and debit card payments from your customers, rather than operating on a cash-only basis.
In this article, we’ll explain what bad credit merchant accounts are and give you an overview of the top providers who offer them. We’ll also give you a quick primer on the factors that affect your credit score and go over some tips on how to select the best bad credit merchant account provider for your business.
Read more below to learn why we chose these options.
Table of Contents
- What Is A Bad Credit Merchant Account?
- 5 Best Bad Credit Merchant Accounts
- Can You Get A Merchant Account With No Credit Check?
- How To Get A Merchant Account With Bad Credit
- 6 Essential Pieces of Information For Your High-Risk Merchant Account Application
- Common Trade-Offs In Merchant Accounts For Bad Credit
- Getting A Bad Credit Merchant Account Isn’t Easy, But It Is Possible
- In Summary: 5 Best Bad Credit Merchant Accounts
What Is A Bad Credit Merchant Account?
A bad credit merchant account is simply a merchant account that has been issued to a business owner who has a low personal credit score or a previous bankruptcy. Bad credit merchant accounts are considered “high-risk,” and so they are significantly more expensive than low-risk accounts.
What Kinds Of Merchants Need A Bad Credit Merchant Account?
Getting approved for a merchant account is very similar to getting approved for a loan in that banks don’t want to extend credit to you if they have reason to think that there’s a significant chance that you won’t be able to pay the money back. Every merchant account provider has a slightly different definition of what they consider to be a “bad credit merchant.” However, as a general rule, you will most likely be labeled as a bad credit merchant if any of the following situations apply to you:
- Low Personal Credit Score: If your FICO score is 580 or less, you can expect to be placed in the bad credit category. This situation mainly applies to first-time business owners, because the banks won’t have an established business record to examine in making their determination.
- Prior Bankruptcy: If you’ve had a prior business endeavor end in bankruptcy, or you’ve had to file a personal bankruptcy, you will almost certainly be placed in the bad credit category. Bankruptcies stay on your credit report for either seven years (if filed under Chapter 13) or ten years (if filed under Chapter 7), so it can be a long wait before you can switch to a low-risk merchant account.
- Outstanding Liens: Liens on your property can negatively affect your credit score and put you in the bad credit merchant category. Banks will, however, evaluate the circumstances of the lien in determining whether to hold it against you. For example, a lien filed against your property by the IRS for unpaid taxes would certainly hurt your chances of getting approved for an account. A lien filed by a lender as collateral because you took out a loan to finance installing solar panels on your roof, however, would probably not hurt your score as long as you were making regular payments on the loan.
- Outstanding Judgments: While this won’t apply to most people, an outstanding judgment imposed by a civil or criminal court would have a significant negative impact on your creditworthiness until it has been paid.
5 Best Bad Credit Merchant Accounts
Bad credit merchant accounts can be obtained from just about any provider that specializes in high-risk accounts. Contract terms, processing rates, and account fees vary widely for each business, so be prepared to negotiate. Also, be aware that the criteria for being labeled a bad credit merchant varies somewhat between different providers.
Here’s a brief overview of five of the best merchant account providers we’ve found that will work with you if you’re a bad credit merchant:
PaymentCloud specializes in providing payment processing solutions for eCommerce, mail order/telephone order (MOTO), and other generally high-risk businesses. In fact, PaymentCloud has been so successful working with these hard-to-place merchants that Stripe and Dharma Merchant Services – two processors we think highly of – recommend them when they can’t place an account.
Much of PaymentCloud’s success is due to its extremely hands-on approach during the initial application and underwriting process, as well as the intensive follow-up support and advocacy provided to existing clients. Despite the extensive underwriting required to onboard a high-risk business, PaymentCloud does not charge an application or account setup fee.
- High-risk specialist
- No account setup fee
- Free credit card terminal with account
- Excellent customer support
- No publicly disclosed pricing
2. Durango Merchant Services
Durango Merchant Services
Durango Merchant Services stands out from the crowd of high-risk providers by offering fair pricing in a segment of the market that’s notorious for charging highly inflated prices. The company invariably provides excellent solutions to complex merchant situations. In fact, it specifically markets to bad credit merchants. If Durango cannot work with your business for whatever reason, it will give you a full explanation of the reasons why you could not be placed.
Durango publishes a very detailed page on its website explaining the various factors that can make you a bad credit merchant. The company also offers pricing information in the form of a range of processing rates and account fees that you can expect to have to pay. Its customer service far exceeds the industry standard, and its sales team consists of honest, knowledgeable in-house staff. Durango provides the expertise needed to set up international merchants from basically any country in the world and to deal with fraud proactively and effectively.
- High-risk specialist marketing directly to bad credit merchant accounts
- Offers offshore accounts for international merchants
- Fair pricing and contract terms
- Dedicated account manager for customer service
- Early termination fee in some cases
3. Soar Payments
Houston-based Soar Payments is another highly-rated high-risk specialist that can accept bad credit merchants. The company offers a wide range of products and services for both retail and online businesses, including support for several popular third-party payment gateways.
Unlike many high-risk providers, Soar Payments offers a lot of information on its website explaining how bad credit merchant accounts work and why you might need one. It also provides general guidelines regarding the minimum credit score you’ll need to be approved for an account. For example, it discloses that if you’re running a credit repair business, but have a personal credit score below 550, your application will almost certainly be declined. Shocking, right?
Soar Payments uses several automated processes to shorten the time it takes for you to apply for and be approved for an account. However, it doesn’t take any shortcuts during the underwriting process. This is actually a good thing, as it ensures that your merchant account will be stable, with little risk of a sudden account freeze or termination. Best of all, the company doesn’t charge an application or account setup fee for this service.
- Automated custom pricing quotes
- No application fees
- Fast underwriting process
- Excellent customer support
- Only available to US-based merchants
- No pricing disclosures on website
4. eMerchant Broker
High-risk merchants – and particularly bad credit merchants – often have to apply with multiple providers before finding one that will approve them for a merchant account. If you’re having a particularly difficult time getting approved for an account, eMerchant Broker can help. The company has a very high acceptance rate, and can often get you a merchant account when you’ve been declined by other providers.
There is a trade-off, of course. With eMerchant Broker, you’ll usually pay higher processing rates and account fees than the industry average. You’ll also have to settle for a long-term contract that includes an early termination fee (ETF). For many businesses, however, paying more for credit card processing is much better than not being able to accept credit cards at all. Although it’s not the cheapest option, eMerchant Broker has a good reputation among users for providing fair, honest service and support.
- Full range of services and third-party integrations
- Very high merchant acceptance rate
- Excellent customer support
- Low user complaint volume
- Rates & fees higher than industry average
- Uses some misleading sales gimmicks
PayKings is a relatively new company, but it’s quickly establishing a reputation for getting merchant accounts approved for businesses that other providers aren’t willing or able to accept. The company accepts bad credit merchants, and offers an extensive discussion of the ins and outs of bad credit merchant accounts on its website. It also works with a network of over 24 acquiring banks and processors to find you an account.
High-risk merchant accounts are inevitably more expensive than what a comparable low-risk business would have to pay, and PayKings is no exception. You can expect your merchant account to come with pricey tiered processing rates, numerous account fees, and a long-term contract. At the same time, the company has a solid reputation for both its sales practices and the quality of customer support it provides after the sale. Like many of our other top choices, PayKings does not charge an application or account setup fee for new merchants.
- No application or account setup fees
- Multi-currency options
- ACH & eCheck processing offered
- Good reputation for customer support
- Uses tiered pricing
- Contract includes early termination fee
Can You Get A Merchant Account With No Credit Check?
If a low personal credit score is the only thing standing between you and your business being able to accept credit cards, you might naturally want to know if there’s any other way to get approved for a merchant account – i.e., one that doesn’t involve a credit check. The short answer is no, but there’s more to the story than just that. The process of approving your application for an account will depend primarily on whether you’re applying for a full-service merchant account or a simpler account with a payment service provider (i.e., Square, PayPal, etc.).
Credit Checks With Merchant Accounts
Applying for a true, full-service merchant account is a lengthy, paperwork-intensive process that’s not all that much different than applying for a mortgage. Your provider (and possibly their backend processor) will want to know as much about you and your business as possible before they’ll agree to give you an account. This process can take anywhere from a few days to two weeks or even longer, and will inevitably include a check of your personal credit. However, your credit score will only be weighed more heavily if you’re a first-time business owner. It won’t count as much for experienced merchants who can show a proven record of successfully running a business. The advantage of this approach is that once your merchant account is established, it will be very stable, and your likelihood of experiencing a sudden account freeze or termination once you start processing should be very low.
Credit Checks With Payment Service Providers
Payment service providers (PSPs) such as Square, PayPal, or Stripe offer an easy way for businesses to start accepting credit and debit card payments without a full-service merchant account. These companies operate by aggregating all their users into a single, very large merchant account. Unlike full-service merchant account providers, the application and account approval process is very abbreviated. In most cases, you can apply online and receive approval to start processing in 24 hours or less. This quick approval procedure skips the usual underwriting process, and usually does not involve a personal credit check. However, PSPs are very quick to shut down your account at the slightest sign of any out-of-the-ordinary activity. As long as you work in a low-risk industry and maintain a low chargeback rate, most PSPs won’t hold your low personal credit score against you. However, if you experience a lot of chargebacks or operate in a typically high-risk industry (e.g., adult entertainment, CBD products, vape shops, etc.), it’s only a matter of time before your account gets shut down.
Why Instant Merchant Accounts With No Credit Check Are A Bad Idea
The popularity of the quick approval process used by payment service providers has encouraged some traditional merchant account providers to also offer so-called “instant approval” as a feature of their merchant accounts. (Read our Instant Approval Merchant Account Guide.) Capitalizing on the frustration merchants experience while waiting for their account to be approved, these providers will collect some basic information about your business (often through an online form) and approve your account without going through the detailed underwriting process first. The problem with this approach, as with PSPs, is that you’ll be at a far greater risk of suddenly having your account terminated after you start using it if your processor flags any transaction as suspicious. To make matters worse, your provider might also place you on the Terminated Merchant File (TMF, or MATCH List) when it closes your account. Unfortunately, being on the MATCH List and having a bad credit score can make it nearly impossible to get approved for an account with a different provider.
How To Get A Merchant Account With Bad Credit
The process of getting a merchant account if you have bad credit is basically the same as it is for merchants with good credit. However, your choice of available providers who are willing to work with you is going to be much more limited. Here’s a brief overview of the process, along with some tips to help you out:
- Research as many providers as possible that specifically work with bad credit merchants, ensuring that they offer the products and services you’ll need.
- Obtain quotes from several of the most promising candidates (we recommend getting at least three quotes, if possible).
- Negotiate with the best candidate to ensure that you’re getting the best deal possible. This is where you can (hopefully) get a discount on your processing rates or a waiver of your early termination fee, if there is one.
- Submit an application and all required information about your business. Be prepared to sit and wait while your application is being processed.
- If you’re approved, carefully review all contract documents before accepting the offer and signing up. If you’re not approved, move on to the next promising candidate and repeat the process.
6 Essential Pieces of Information For Your High-Risk Merchant Account Application
As a bad credit merchant, your chances of being turned down for a merchant account can be unnervingly high. You can – and should – expect to have to repeat the application process with more than one provider before you find one that will accept you. To make this process a little easier, we recommend that you assemble a package of documents that providers will want to see as part of their onboarding process before you submit any applications. While each provider will have a different set of paperwork requirements, the following information will almost always be required:
- Business license documentation
- Business incorporation documents
- Bank statements
- Processing statements from previous providers, if any
- Links to your business website(s), showing clear published return/refund policies
- Information on previous chargeback history
Common Trade-Offs In Merchant Accounts For Bad Credit
So far, we’ve shown you how to get a merchant account even if you have bad credit and have been turned down by other providers because of it. Now for the not-so-great news: like any other high-risk merchant account, your account is going to be more expensive and have more restrictions placed on it than a comparable low-risk merchant would have to accept. Here are the ways in which your account will differ from a typical low-risk account:
- Higher Processing Rates: Most high-risk providers can only offer you a tiered pricing plan, which is generally more expensive than other options. While a few providers can set you up with a more affordable interchange-plus pricing plan, you should generally expect to pay rates that are about two times higher than the industry average for low-risk businesses.
- Higher Account Fees: So-called “hidden” fees are the bane of any small business trying to keep its credit card processing costs under control. However, as a bad credit merchant, you can expect to pay a premium for some (but not all) of these fees. Monthly account fees are frequently much higher than average, but you have some leeway to negotiate this fee when setting up your account. Be sure to review your contract documents carefully to determine which fees you’ll be responsible for, and how much they’ll cost you.
- Long-Term Contract: Low-risk providers are increasingly moving toward a month-to-month billing model due to market pressure and complaints from merchants. Unfortunately, this enlightened approach rarely extends to high-risk merchants. Be prepared to have to accept an industry-standard contract with an initial term of three years, an automatic renewal clause, and an early termination fee if you break your contract.
- Monthly Processing Volume Limitations: High-risk merchant accounts typically come with caps on the maximum amount you can process in a month. If you exceed this amount without coordinating in advance with your provider, you could see your account suddenly frozen until the end of the current billing cycle. Note that once you’ve been with a provider for a while, you can often negotiate an increase in the size of your monthly processing volume limit, if you need it.
- Reserves: One of the most draconian restrictions on high-risk merchant accounts is the imposition of a reserve (sometimes called a “rolling reserve,” depending on how it’s structured). With a reserve, your provider will withhold a specified percentage of the funds from your transactions for a certain amount of time as a hedge against possible chargebacks. These funds will be released back to you over time, and you’ll eventually get all of your money back. Once you’ve met the conditions of the reserve, it’s usually lifted automatically. However, reserves can create serious cash flow problems, especially for a new business. It’s critically important that you understand exactly how your reserve works and take steps to minimize the problems it can create for your business.
Getting A Bad Credit Merchant Account Isn’t Easy, But It Is Possible
Credit is a fluid thing. You can turn good credit to bad and bad credit to good, all in a span of a few years. When you apply the concept of evolving credit scores to a new business, understand that while your business’s credit will at first rely heavily on your personal credit, as your business continues to grow, its credit score will eventually stand on its own. Even if your business and personal credit scores are less than stellar in the beginning, they won’t last forever.
As a bad credit merchant, you have a unique advantage over business owners who work in an inherently high-risk industry, in that you can improve your business’s credit score over time. Eventually, you can qualify for a low-risk account that will save you a lot of money in credit card processing costs. In the meanwhile, having bad personal credit can make other aspects of owning a business more difficult, including applying for a business credit card or a loan. Here are some resources to help you in dealing with these issues:
- 5 Best Credit Cards For Small Businesses & Startups With Bad Credit
- The 5 Best Small Business Loans For Bad Credit
- The 5 Best Business Lines Of Credit For Bad Credit
- How Long Does It Take To Improve My Credit Score?
With time and a solid strategy, you can establish a strong processing history and improve your business’s credit score to the point where you won’t need an expensive high-risk merchant account anymore. Good luck!
In Summary: 5 Best Bad Credit Merchant Accounts
- PaymentCloud: PaymentCloud specializes in providing payment processing solutions for eCommerce, mail order/telephone order (MOTO), and other generally high-risk businesses. They stand out by taking a hands-on approach during the initial application and underwriting process, and they provide intensive follow-up support and advocacy to existing clients.
- Durango Merchant Services: Durango Merchant Services offers fair pricing in a segment of the market that’s notorious for charging highly-inflated prices. They specifically market to bad credit merchant accounts. The company also has above-average customer service and an honest, knowledgeable sales team.
- Soar Payments: Soar Payments is a highly-rated high-risk specialist that can accept bad credit merchants. The company is best known for using automated processes to streamline the application and account approval process, allowing you to get up and running quickly.
- eMerchantBroker: eMerchant Broker's strongest point is that it can often get you approved for a high-risk account even if you've been turned down by other providers. The trade-off is that it's also known for being more expensive than other high-risk providers.
- PayKings: PayKings is a relatively new high-risk provider that can accept bad credit merchants. It offers a full range of products and services, including ACH & eCheck processing and multi-currency processing.