Why Credit Repair Companies Receive Excessive Chargebacks

Jun 21, 2022

Every aspect of our lives is affected by how great or poor our personal credit score is. Having good credit opens many doors of opportunities such as access to loans at an incredibly low rate. Insurance premiums can also be dramatically lower. Nowadays, getting well-paying job hinges heavily on your personal credit score. 

When an individual has poor credit, their financial future looks dramatically grim. They may not have access to loans, and if they do, they are at astronomical interest rates, they may not land their dream job, and they may not qualify for a mortgage. 

That’s why it’s in everyone’s best interest to repair their credit as soon as they discover a problem. 

What Is A Credit Repair Service?

A credit repair service, also called a credit repair organization, is a “third-party” that tries to get current information off of a consumer’s credit report in exchange for payment. 

These companies exist to make a profit while improving the current state of their customer’s credit scores. 

There are some credit repair services that “claim” to remove erroneous information from their credit reports. But the truth is that they remove accurate information before it “naturally” disappears. 

The Most Prevalent Reasons For Chargebacks 

Credit repair companies do the grunt work of removing negative information off of a consumer’s credit report. The reality is that consumers are ultimately dissatisfied with the results of this service, leading to a high rate of chargebacks. 

Then you have other credit repair companies that outright lie to customers, making “false promises”, only to fall dramatically short on their claims. Naturally, the industry suffers from overall customer dissatisfaction as well as trust at an all-time low. 

The result of all these false claims and practices has led to more stringent regulations throughout many states. This too has dramatically driven the number of chargebacks. 

Let’s dive into the most common reasons for chargebacks:

1. Unrealistic customer expectations

There is no guarantee that a consumer will see a significant improvement in their personal credit score. Incorrect information can always be eliminated, but a customer’s existing debt and any new debt they acquire during “the term of service” could negatively impact their credit score. 

2. Types of payment

Credit repair services carry out the vast majority of their sales through the phone. This makes it impossible for businesses to authenticate a customer’s identity. This can lead to both fraud and chargebacks. Fraud tools are essentially absent if transactions are taking place on the phone instead of online. 

3. Inadequate industry standards

The credit repair industry does not have a significant “governing association” or an authoritative publication that can guide merchants on the best practices of the industry. There are no guidelines about compliance as directed by federal agencies. 

How To Combat Chargebacks

When it comes to fighting chargebacks, merchants can choose one of three routes: 

  • Do nothing 

Many merchants lack the expertise or the time to effectively fight off chargebacks. Others simply write them off as part of the cost of doing business. What they don’t realize is that they stand to lose up to 40% of their revenue. 

  • Fighting them in-house 

You can definitely pursue this route if you only experience 50 chargebacks or less every month, have a win rate of over 60%, or have fully-trained staff that has experience fighting chargebacks. 

  • Outsourcing to a chargeback management company

Outsourcing would be a great solution only if they are able to provide valuable analytics to pinpoint the root causes of chargebacks. It would also help if they are able to boost your “chargeback win rate.”

Credit Repair Is Vital

Credit repair companies help consumers get their credit to a more optimal level, to grant them more financial freedom. Despite the high level of chargebacks, merchants can still seek ways to mitigate them. 

Let us help you get a high risk merchant account today!

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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