May 25, 2018

Chargebacks are the curse of credit repair services. Understanding and managing the chargeback ratio is essential for any credit repair company that wants to keep receiving credit repair payments from customers at the standard payment processing cost. Here’s what you need to know about chargebacks and using flat fee credit repair accounts to reduce them.

What is a Chargeback Ratio?

A chargeback ratio is the number of chargebacks per month divided by the total number of monthly transactions. It’s not about the dollar amount of a chargeback, and it doesn’t matter if a business disputes chargebacks and wins. As soon as your customer files a dispute, the chargeback is applied to your account. Reducing your chargeback ratio will pay dividends right away, and improve financial prospects moving forward.

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Why do Chargebacks Matter?

If your business goes over 2% in chargebacks a month, your merchant account may be frozen or terminated, and/or the funds in your merchant account may be temporarily placed on hold. You’ll often find it difficult to get the account reinstated, or find another payment processor who is willing to work with you. This is because credit card companies can fine payment processors thousands of dollars if they allow you to continue processing transactions when your chargeback ratio exceeds 2%.

Excessive chargebacks often indicate that a company isn’t conducting its business properly, ipso facto if you reduce chargebacks, your business increases in perceived legitimacy. For most consumers, chargebacks are a last resort, so when a financial services firm sees excessive chargebacks, they assume a business is in trouble.  While this often is an accurate red flag for some industries, a credit repair firm may do everything right and still be hit with a significant number of chargebacks because of the nature of their business.

Why do Credit Repair Firms Receive so Many Chargebacks?

Credit repair companies need to reduce chargebacks more than other companies because of the nature of their clientele’s finances. Financial problems can be caused by circumstances outside of a person’s control, or by poor money management skills, but whatever the reason, someone who needs credit repair services is obviously approaching a credit repair company from a state of need. When a significant percentage of your customers have or have had problems paying their bills, it’s logical to assume that they may not be able to meet their credit repair payments – which may result in chargebacks.

As part of working to reduce chargebacks, manage clients’ expectations whether you accept payments through a flat fee credit repair merchant account or not, otherwise, your customers may have a valid reason for disputing charges. Customers sometimes assume that they’ll have a vastly improved credit score within a month or so, so they may decide to dispute charges when they don’t see a quick, sustainable change to their credit status. They may not understand the credit repair process, but promising more than you can deliver, or being less than transparent about what you can and can’t do, will almost certainly result in more chargebacks.

How to Reduce Chargebacks

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There are several additional things you can do to protect your business from rampant chargebacks:

  • Avoid billing confusion: Make sure that the charge on your client’s card is identifiable and avoid billing under a name they may not recognize.
  • Have effective customer service: See that your customers’ problems are treated efficiently, and compassionately. Remember: your customer base is largely in financial trouble. It should also be easy for your customers to cancel their account using the communication method of their choice. In general, offering a refund when a customer is obviously unhappy is a very effective way of reducing chargebacks. You can always reach out later and try to win the customer back.
  • Flat fee merchant account: A flat fee credit repair account charges you a predetermined monthly fee and a flat per-transaction fee instead of a percentage of your monthly sales volume, so you can grow your sales without paying a heftier tax for your success.
  • Chargeback reduction: Some software solutions can significantly reduce chargebacks by monitoring for transaction errors, potentially problematic patterns, and other issues that result in chargebacks more often.
  • Fraud protection: Chargebacks are a far more frequent problem for credit repair companies than fraudulent transactions, but accepting payments electronically is inherently riskier than processing them in-person no matter what type of goods or services you sell. Fraud protection solutions help you spot suspicious transactions.
  • Pick the right payment processor: Working with a high-risk payment processor gives you a real edge when looking to reduce chargeback rates. High-risk refers to businesses in industries that are prone to a higher rate of chargebacks. The right high-risk payment processor will have experience in mitigating the risk of chargebacks and managing other issues of specific concern to credit repair businesses.

T1 Payments specializes in meeting the needs of companies that handle credit repair payments, among other high-risk merchants. It provides a full suite of payment processing and payment gateway services that integrate with over 175 different shopping carts. T1 Payments offers flat fee credit repair merchant accounts and provides comprehensive account monitoring, reporting, and support to help high-risk merchants reduce chargebacks, fraud, and other business risks.

To find out more about our customizable global payment solutions for high-risk merchants, please visit or call 866-518-2216.