This page will cover everything you need to know to succeed as a member of the credit repair industry. Opening a credit repair merchant account isn’t always easy, but we’re here to provide you with the tools necessary to make it happen (and to keep you in business).
Table of Contents
- State of the Industry Today
- Laws (Federal & State)
- Struggles Facing Credit Repair Merchants
- Industry Tips for Getting Your High Risk Merchant Account
- Commonly Asked Questions
- Additional Resources for Credit Repair Businesses
Credit repair services are sought out by many people across the country, generally to clean up their financial records and get boosted to the top of the credit score range in order to qualify for low interest loans and credit cards. Although looked down upon by banks due to the risk of chargebacks, working with people to fix their credit scores is a legal and beneficial practice.
However, getting payment processing set up for such a business can be a struggle. Classified as “high risk” by banks, credit repair businesses frequently encounter challenges when trying to open what most underwriters consider to be “high risk merchant accounts”. Many processors won’t even take their application.
While this is unfortunate, it’s not the end of the world. Motile has tried-and-true solutions for any company working in a legal industry, regardless of risk. We are ready to get you a credit repair merchant account, and keep your business running with dependable payment processing (it’s what we do).
Continue reading (or use our table of contents) to find out what’s trending in the credit repair industry, laws you should be aware of, struggles other owners are facing, frequently asked questions, and tips for getting your account approved.
State of the Industry Today
Trending The Wrong Way
Although there’s been a decline in growth following the U.S. recession (-4.8% from 2011 to 2016), credit repair is still annually a $4 billion dollar industry. There are several reasons companies that furnish credit repair services will continue to attract customers into the future:
Reason #1: Credit report agencies make mistakes (often).
An 8 year FTC study about credit reporting errors made a splash in 2013 when it claimed that 25% of consumer credit reports contained at least one error. With so many inaccuracies in the world of credit (and how big an impact even one mistake can have on someone’s financial livelihood), it makes sense that credit repair has become such a large industry.
Reason #2: Data regarding 1.3 billion “trade lines” is passed by creditors to credit agencies every month
There is a lot of room for error when you’re dealing with such vast quantities of data, regardless of the industry. The importance of accurately reporting this information can’t be overstated either – with credit affecting our ability to get a mortgage, rent a car, and sometimes even land a job.
Reason #3: The dispute system is flawed and not built in favor of consumers
CBS’s acclaimed television show 60 Minutes highlighted problems in the credit industry during their 2013 investigative report titled “40 Million Mistakes: Is Your Credit Report Accurate?” In the program, a major issue they focused on was the shoddy system set in place by the big three credit players (Equifax, Experian, and TransUnion) to handle customer disputes. They describe how most claims are reviewed by people living outside the U.S., and that the reviewers can’t actually do much to help.
Furthermore, it was revealed that these credit agencies provide different reports to consumers than the ones they give about consumers to insurance companies and banks. If there are discrepancies between the two (as there were for the woman being interviewed), it could cause a lot of trouble. Credit repair services help Americans dig through this muck, and resolve issues that are simply impractical to handle alone.
Industry SIC & NAICS Codes
The majority of credit repair businesses can be grouped into one of four Standard Industrial Classification (SIC) codes – designations established in 1937 by the U.S. government to group businesses into legally defined industries. These four codes are:
- 7299: Consumer credit counseling services; Credit repair (i.e., counseling) services
- 7323: Credit Reporting Services
- 7389: Business Services, Not Elsewhere Categorized
- 8748: Business Consulting Services
If you’re interested in reading more about the SIC categories, the U.S. Department of Labor has listed them out completely on their website.
While the SIC is still used by federal agencies to varying degrees, it’s being slowly phased out by the North American Industry Classification System (NAICS). Relevant NAICS codes for members of the credit repair industry include:
- 541990: Other Professional, Scientific, and Technical Services
- 561450: Credit Bureaus
- 541618: Other Management Consulting Services
The website for the NAICS is a bit old school appearance-wise, but it’s still an informative resource if you’re unsure how to classify your business.
Notable Companies
The credit repair industry is comprised of primarily small companies, but some stand out above the rest (in terms of size and prestige). Unfortunately, they are all private enterprises, so their financial standing is not disclosed to the public. These key players include:
Sky Blue Credit Repair: Started in 1989, with 50+ staff today. They pump a lot of energy into their affiliate program, which yields an impressive amount of leads.
Lexington Law: Over 20 lawyers on staff, 400+ paralegals. One of the largest credit repair businesses out there, bolstered by the fact that they are a legitimate law firm
The Credit People: Featured in a variety of major journals and magazines with an accumulated 17+ years of experience, The Credit People are another major player in the credit repair industry.
Relevant Laws (Federal & State)
Federal Legislation
As a credit repair merchant, the federal law that carries the most weight for you is the Credit Repair Organizations Act (CROA). Passed into law in 1996 by President Bill Clinton, the main takeaway from this piece of legislation is that accepting large upfront payments is illegal, and that services must be first rendered before payment can be taken.
It also requires credit repair contracts be fully written out, and grants consumers certain contract cancellation rights.
State Specific Laws
Depending on the state, you may need to adhere to certain credit repair or consumer laws beyond the CROA. Here’s a list of states where additional legislation must be taken into account:
Note: for states with no link, it’s assumed that that state’s government has ceded authority to the CROA, and adheres exclusively to the policies established by the federal government.
| Alabama | Hawaii | Massachusetts | New Mexico | South Dakota |
| Alaska | Idaho | Michigan | New York | Tennessee |
| Arizona | Illinois | Minnesota | North Carolina | Texas |
| Arkansas | Indiana | Mississippi | North Dakota | Utah |
| California | Iowa | Missouri | Ohio | Vermont |
| Colorado | Kansas | Montana | Oklahoma | Virginia |
| Connecticut | Kentucky | Nebraska | Oregon | Washington |
| Delaware | Louisiana | Nevada | Pennsylvania | West Virginia |
| Florida | Maine | New Hampshire | Rhode Island | Wisconsin |
| Georgia | Maryland | New Jersey | South Carolina | Wyoming |
Why am I “High Risk”?: Struggles Facing Credit Repair Merchants (and solutions)
Operating as a high risk merchant is a different ballgame than it is for members of low risk industries, and comes with its own set of challenges. Simply opening a credit repair merchant account is an endeavor – keeping it running and growing into the future is even more challenging.
The first step toward overcoming such struggles is to understand them. Here are four struggles facing credit repair merchants, and solutions for overcoming them when it’s time to face them head on.
1. Reputation of being scammy
Major publications like the Washington Post and others have been known to lambast the credit repair industry, frequently decrying it as one that “takes advantage of people’s desperation for a quick fix.”
While there are horror stories for customers of every industry, ones involving credit repair companies are particularly frequent. It doesn’t help either that services rendered are ones that anyone could do on their own with a bit of time and effort.
Solution: Don’t make promises you can’t keep. Many credit repair merchants tread a fine line between the truth and straight up dishonesty, and it’s important that you don’t make unrealistic claims to simply capture the attention of customers.
For instance, don’t advertise things you can’t do for certain (like raise a customer’s credit score by 50 or remove 4 negative items from their report). Instead, mention averages (our average customer sheds 2.2 negative items from their report and improves their score by 31.6), because you aren’t blatantly promising results. Sometimes it’s simply impossible to help someone improve their credit, so make sure your customers understand that too.
2. Frequent Chargebacks
Chargebacks are a merchant’s worst nightmare, and when you operate in an industry that caters to people hurting financially, they’re unfortunately inevitable. Keeping your credit repair merchant account open largely hinges on your ability to keep chargebacks low.
Solution #1: Invest in Customer Service. Having a 24-hour CSR on staff is invaluable if you want to stop chargebacks in their tracks. Many people are willing to work it out with a business if there is someone available to handle their pressing queries.
Microsoft conducted a study in 2017 that found that 56% of consumers cut ties with a company because of poor customer service, and 30% of those customers were most frustrated at not being able to reach a living, breathing person to air their grievances (or handle their issues).
Solution #2: Refund First, Troubleshoot Second. Irate customers should be given refunds immediately, because they likely haven’t initiated a chargeback yet. Ensuring your credit repair merchant account stays open is predicated on a low chargeback amount, so think long-term goals and don’t worry about the cost of proffering a refund.
Once you’ve taken care of the refund, you can then go ahead and try to work to alleviate their concerns. It’s still possible to retain their business, so make sure your CSR’s are trained and ready to give it a shot!
Solution #3: Invest in Consumer Dispute Notifications: Companies like Chargeback.com and others provide message alerts when your customer begins the chargeback process. This gives you the opportunity to reach out to them, proceed with the refund process, and hopefully avoid taking a hit on your chargeback stats.
3. Lack of brand awareness
Unless you’re running an already established credit repair business, chances are your customers barely (if at all) know your company, or why you chose to operate in this industry at all. It’s good to get yourself out there if you want to start incepting trust into the minds of your future (and current) users, not to mention attracting new clients.
Solution: Embrace Visibility. Nothing freaks a customer out more than paying a business, and then having a difficult time getting in touch with them online/via phone when they have a question or concern. Make sure you have a good internet presence (social media pages, a nice website and “About Us” page), and be ready to deliver satisfactory answers when the time comes.
Plus, the more people get to know about you and your business, the more likely they are to put their faith in you to deliver results. Be visible, be transparent, and show your customers you’re not out there to swindle them.
4. Difficult Customers
The credit repair industry handles a very specific problem – one that isn’t likely to be of much concern to customers with deep pockets. Normal clients for a credit repair merchant include working class families, the less educated, and people who simply have weak credit scores for whatever reason (to be fair, sometimes they are weak due to misreporting).
Solution: Screen your customers. More specifically, don’t just take anyone’s business. Sit down with each potential client, find out what ails their credit score, and objectively determine if this is a person you can help with your services. It’s tempting to cast every possible customer into your net, but it will come back to haunt you if you’re not careful.
Four Industry Tips for Getting Your High Risk Merchant Account
Opening a high risk merchant account for a credit repair business requires not just effort, but a bit of luck as well. At the end of the day, there’s no surefire bet (although we like to think we have a better chance at making it happen than the average payment provider).
However, there are ways to push the odds in your favor. If you embrace the following four tips, you’ll be in much better shape when it comes time to sit down with a merchant services agent and iron out your contract (plus the necessary underwriting).
Tip #1: Get Your Ducks in a Row
Frequently, the biggest trick for getting a high risk merchant account setup is being organized. Having your taxes in order, assembling all the necessary documentation (which we’ve outlined in a previous blog post), and providing a clean sheet of your financial records will put a payment processor at ease. And more importantly, all of this will increase your chances of landing an account.
Tip #2: Apply for One Account at a Time
Your personal credit score should be an asset, not a liability, when you’re going through the steps toward opening your merchant account. Each time you apply for an account, the bank will pull the credit of both you and your business. This will hit your personal credit score, so if each pull reduces it by two points and you apply to 20 processors, you’ll take a 40 point hit.
Plus, if your merchant service provider discovers you’ve put in multiple applications, it will set off red flags and likely lead to the dismissal of your pending contract. Take your time, and go for a quality over quantity approach to this process. You might end up banking with this provider for many years to come, so you shouldn’t haphazardly launch out applications.
Tip #3: Understand that Payment Providers Respect Stability
If you can prove that you run a stable, growing credit repair business, you’ve already won much of the battle (in terms of opening a new high risk merchant account). Even if you’re completely new to the industry, being able to construe yourself as reliable with an effective business plan or a well-organized growth strategy will go a long way toward making a stronger case for you.
Tip #4: Work With an Agent
When you’re first getting into business, many things start to become clear – a big one being that there are a ton of payment processing options out there. Not to mention, with advances in technology, there are more types of merchant services today than ever. It’s a bit of a difficult world to navigate if you’re new (or even if you aren’t).
That’s where veteran payment processing agents come in. A company like Motile provides tailored payment solutions for their customers, because they fully understand the ins and outs of the merchant service world and work with a huge swath of providers. It’s easy to get a great industry-leading rate when you have a long-time payments veteran doing the footwork for you.
Five Common Questions Credit Repair Merchants Ask
If you’ve made it this far, you’re already further along the path to success than the majority of your competitors. If you’re serious about getting your credit repair merchant account open and operational for the long haul, it’s good to stay curious and learn from others.
Here are five big questions many others in the credit repair industry ask, with corresponding answers and suggestions for them.
Question #1: How Can I Get Better Rates?
- Know what’s out there, and how rates work (wholesale vs. markup, for instance).
- Negotiate – wholesale rates are fixed, but markups can be changed if you have a strong case why you deserve cheaper processing.
- Run your business honestly and don’t make any rash financial decisions – as mentioned earlier, processors love stability. If you have a proven track record as a stable enterprise, you immediately have more bargaining power.
Question #2: Can I Improve My Processing Volume?
The short answer is yes. However, early on you’ll likely face less-than-ideal volumes. Don’t be deterred. After you establish yourself as a reliable merchant and prove to your provider you can keep chargebacks low, you’ll be in a better position to increase that volume.
Question #3: Is There a Reason my Funds Are Being Withheld?
Yes, and it’s probably not one you’re going to like. It’s fairly standard for payment processors to write a merchant account reserve requirement into the contract of a high risk business, and if they are withholding your money it’s likely you’re on the path toward an account cancellation.
This could be due to your chargeback ratio, suspicious statistical anomalies in your transaction total and revenue, or even because of excessive bad customer reviews online. Get in touch with your provider as soon as you notice a hold, and see what you can do to ameliorate the situation before it’s too late.
Question #4: What’s the TMF?
The Terminated Merchant File (or “MATCH list” for Visa / MasterCard) is a list that you definitely do not want to be associated with. If you’re on it, then you must have caused trouble for one of your previous banks or providers (or they at least they think you did). It’s in your best interest to try and reconcile this situation by reaching out directly to whomever placed you there, so you can do whatever necessary to extricate yourself.
Merchant service providers use the TMF as a tool to screen for risky applicants. Before getting serious about opening a merchant account, do your best to remove your business from this list – it has the power to stop you from opening bank accounts for all future businesses under your name.
Question #5: Why Did My Provider Close My Account?
Similar to why your funds are being withheld, your provider may have closed your account for chargebacks or sketchy account activity. If they are worried you’re laundering money or committing fraud, not only will they close your account but likely throw you up on the TMF. Make sure you understand why your processor shut you down, because it can impact your ability to open an account later on.
Additional Resources
1. National Association of Credit Services Organizations
Valuable resource for entrants into the credit repair industry. As the website for the official trade association of credit repair merchants, NACSO provides accreditation, relevant educational pieces, plus support for anyone in providing credit repair services.
2. Financial Counseling Association of America
Website for the credit counseling trade association. If you’re looking for anything from the basics to more advanced knowledge related to running a credit repair business, this is a great place to check out.
3. The FTC’s “Choosing a Credit Counselor”
Written by the Federal Trade Commission with consumers in mind, “Choosing a Credit Counselor” is a good resource if you’d like to better understand the perspective of your target customer.
4. CreditRepairCloud Blog Post: “How Much Should I Charge My Credit Repair Clients?”
Good introductory resource for anyone looking to iron out their pricing model for services rendered.
