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    0 Replies Latest reply on Nov 10, 2009 8:24 AM by amspcs

    Do you need good credit to get merchant services?

    amspcs Ranger
      I found the above subject line on my Google Analytics keyword list this morning. In my business, the subjects of "what does my personal credit have to do with my processing account" and "why do I have to provide my social security number
      on the merchant services application: come up all the time. Apparantly, many people don't understand these concepts, so I thought I'd take a moment to explain publically.

      The short answer is: A merchant account is a line of credit. It's not +simila+r to a line of credit, it IS a line of credit.

      The ability to accept credit card payment in exchange for one's goods or services is not a right available to everyone; it is an earned privilege subject to underwriting criteria and other rules and regs associated with the granting of credit. A merchant processes a credit card (technically a small loan) which is then submitted to his processor in the daily batch transmission
      This submission is basically a promisary note. In exchange for the promisary note, the processor advances the monies to the merchant. This advance is subject to significant risk on the part of the processor. If the transaction is invalid,
      fraudulent or otherwise non-payable, the processor faces the problem of retrieving the advanced monies back from the merchant, a process called a "chargeback". This is where the credit of the merchant comes into play. If the merchant has poor credit,
      that probably means he isn't good for his debts, which tells the processor they're probably going to have problems getting the merchant to make good on his chargeback debts. So before any processor grants processing permission to a merchant, they want to know about the personal credit of the merchant, which is why the SS number is required.

      Which leads to the follow-up question: "Can everybody and anybody get a merchant account?" The answer is: No, not necessarily. Any merchant will truly horrible credit (or who engages in a business with a historically high chargeback risk) will find it nearly impossible to obtain a merchant account with what I call an "A:" or "B" processor (if at all). This sort of merchant may possibly find a home with a "D" or "F" processor who is willing to accept higher risk levels (some domestic processors, several offshore processors) which unfortunately comes with a higher price tag--the old risk/reward axiom of the financial industry. It works just line any other loan--those with the best credit get the preferred rates.