Personal Credit & Merchant Accounts

A Merchant account is essentially a line of credit so it's not surprising that a principal's personal credit standing is an important consideration during the application process. While personal credit is an important factor in the merchant account application, it doesn't have the same effect as it would on a conventional line of credit or loan application.

With merchant accounts, a principal's personal credit standing will affect the application process in one of three ways. If the principal's personal credit is very poor, the merchant account application will likely be declined. If the principal's personal credit standing is marginal, the merchant account may be approved if the merchant agrees to stipulations such as a rolling reserve or an ACH delay. If the principal's personal credit score is good, the account will be approved so long as all other details are in order.

Personal credit mainly impacts a merchant account during the application process where it's considered with other criteria to calculate the risk associated with a new merchant account. After the application process is complete, processing activity is used to measure risk associated with an account. Personal credit does not affect the rates and fees of a merchant account. A merchant with outstanding credit would get an account with the same rates and fees as a merchant with weak credit; assuming the merchant with weak credit is approved.

Personal credit standing will not cause you to lose a merchant account that you already have. Once you get a merchant account and start accepting credit cards, processors use your processing history as a benchmark, not the principal's personal credit status.

While personal credit doesn't directly impact the rates and fees of a merchant account, it can indirectly impact the overall cost and operation of the account if a rolling reserve or ACH delay is required due to weak credit. If a the personal credit of the principal signer on a merchant account has weak credit a processor may require an ACH delay or rolling reserve in order to mitigate the higher perceived risk of the account due to the principal's credit standing.

When you're researching providers and applying for a merchant account, be honest about your personal credit standing, even if you don't have the best score. While researching providers, being upfront about your credit status will ensure that you don't waste time considering providers that may not be able t get you approved. Processors have varying credit tolerances. Some will be able to work with merchants with less than perfect credit while some are more stringent about credit requirements.

If poor personal credit is stopping you from getting a merchant account there are things that you can do to get around the credit hurdle. The first and most popular way of getting a merchant account with poor credit is to have someone with better credit act as a co-signer on the merchant account. In this case the processor will consider the personal credit of the co-signer on the merchant account application instead of the personal credit of the principal.

Another way to get a merchant account if you have less than perfect personal credit is to allow processors to impose ACH delays or rolling reserves on the account. Both of these stipulations can be removed after a satisfactory processing record has been established. Sometimes ACH Delays and rolling reserves are not an option if personal credit is exceptionally poor or if tax liens or collections are an issue.

Questions & Comments

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On April 10, 2009 Shane said:

If a merchant account gets closed due to excessive charge backs, or any other reason, can the merchant account ding your credit score, or is your credit score left intact?

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On April 10, 2009 MerchantCouncil said:

Thank you Shane, this is a great question.

For all but publicly traded corporations with a major stock index listing, the personal credit standing of a business's owner or principal is used by an acquiring, along with other factors, to determine whether or not a business qualifies for a merchant account. Beyond this, there is no relationship between the personal credit of the owner or principal and the merchant account.

The effects of having a merchant account closed by an acquiring bank will not be evident on the owner or principal's personal credit history. However, having your merchant account closed can have lasting and potentially expensive negative implications for the business.