Credit Repair

Why is Credit Repair Considered High Risk?

Read Time: 4 min

The credit repair services market is within the widely spreading financial industry that seeks to coach individuals on financial matters. From improving credit scores to debt consolidation, this industry has become a popular one with the increase of debt in the US. 

While the general public may have an idea of what a credit score is, the importance and value of this three-digit number are not as apparent. This ambiguity creates the perfect space for providers to help clients work the ins and outs of improving their credit scores. 

What is Considered Credit Repair?

repairing credit to increase cashflow

There are a number of reasons why someone’s credit score can drop. From the preventable to the unforeseeable, sometimes your credit score taking a dip is inevitable. But for those who find themselves in a rut with no end in sight to their credit troubles, outside help might be a viable option.

Credit repair services might look different depending on the provider, but they all have the shared goal in mind to use the best tactics in order to improve the credit score of the client. Having good or even just adequate credit help ensure you can breeze through important life commitments. Buying a house, financing a car, taking out a loan, all require a certain level of credit by the lender. 

Services for credit repair exist to increase a client’s credit score while getting them back on the right track financially. The tools these providers give to their clients should assist them in maintaining good credit on their own. In addition, these representatives may do a certain level of investigation into clients’ finances. Are there changes that can be disputed? Any misunderstandings that can be cleared up? These are a few of the directions that credit repair companies will pursue when striving to improve clients’ credit. 

The Levels of Credit Scores

The most common scale of one’s credit score is the FICO score. This rating has a range from 300 to 850. The classification goes accordingly:

  1. 800 + is considered Exceptional
  2. 740-799 is considered Very Good
  3. 670-739 is considered Good
  4. 580-669 is considered Fair
  5. 579 > is considered Poor

The Credit Repair High Risk Label

Businesses of all industries have the potential to be flagged as high risk. While it can seem upsetting and confusing, the reality is not so bleak. In the simplest of terms, being categorized as ‘high risk’ means processing banks feel that your business does not qualify for their services. Consequently, your business will need to find credit card processing companies that are more lenient in what they will accept.

Traditional processors’ biggest concerns are over reputational and fraudulent risk. Providing payment processing for businesses that exist in controversial industries is a risk to their reputation. Common industries that get flagged are adult and anything cannabis-related. Also, industries that might not have factual proof of effectiveness can be added to that list. Banks get cold feet being associated with these types of businesses.

The risk of fraud is a major red flag for these banks as well. Being more established, they can limit who they will do business with, thus mitigating the risk of any funny business going on. As a startup or a business that has not gotten its feet off the ground, these processors might automatically decline their request for a credit repair merchant account on the grounds of insufficient history. 

There are general reasons a business is labeled as high risk, however, credit repair accounts tend to run into the same leading reasons.

  1. The industry type is not accepted under their list of approved Market Identifier Codes (MIC/SIC)
  2. Rate of chargebacks might be at a higher percentage than they are willing to accept
  3. How long the business has been established depicts either a credible history or one that is lacking

While this list represents the most common reasons credit repair merchants are declined, there are still a number of causes that result in a high risk label. 

Obstacles for High Risk Businesses

credit cards

Frequently, business owners who get sorted into the high risk label freak out. The concern is understandable as every merchant wants the best provision for their business. Not qualifying for Square or Stripe can be a big blow if the merchant was planning on utilizing their platforms.  

Beyond the initial shock of being rejected by big banks for processing credit cards, high risk merchants must alter how they proceed further. If payment processing is essential for their business, the next step would be to pursue an alternative provider. Because their operation is considered a risk, options are limited. Additionally, when applying for a merchant account, the business owner may need to provide more information. Authorizing banks need to be reassured that the merchant will be a worthwhile investment, often requesting a look into clients’ business history, personal credit score, and chargeback rates to name a few. 

Is payment processing off the table?

While it’s normal to feel a bit discouraged after your credit repair business is denied due to the high risk nature, there is more that can be done! Securing a merchant account to begin accepting credit cards in your credit repair business is still very much an option. Popular processors will not apply to you, but there is an entire payments space that caters to high risk credit card processing

Utilizing alternative merchant services companies for credit card processing is the clear path. While your business does not have to be classified as high risk to qualify for these services, the representatives are well-versed in getting high risk accounts approved. Whether you’re after more competitive rates or were referred to a high risk merchant services company, taking advantage of a lesser-known organization can pay off for your business.