How Credit Repair Companies Can Reduce Chargebacks

May 25, 2018

How Credit Repair Companies Can Reduce Chargebacks

Chargebacks are the curse of credit repair services. Understanding and managing the chargeback ratio is essential for any credit repair company that wants to stay in business. Here’s what you need to know;

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.

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. And 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%.
And excessive chargebacks often indicate that a company isn’t conducting their business properly. Happy customers don’t dispute charges; they try to work things out with the merchant first. For most consumers, chargebacks are a last resort. So, when a financial services firm sees excessive chargebacks, they assume a business is in deep trouble.  And while this is often true, a credit repair firm may do everything right and still be hit with a significant number of chargebacks.

Why so many chargebacks for credit repair firms?
Financial problems can be caused by circumstances outside of a person’s control, or by poor money management skills. Whatever the reason, someone who needs credit repair services obviously has bad credit and is extremely eager to repair it quickly – almost certainly so they can access more credit. So, 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 pay you, or they may choose not to pay you – which may result in chargebacks.
Your customers may also have a valid reason for disputing charges. Managing expectations is a big part of keeping chargebacks low in the credit repair business. Customers may assume that they’ll have an amazing credit score within a month or so, or may decide to dispute charges when their credit repair doesn’t result in a significant, 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 chargebacks.
Other issues that often result in chargebacks include ineffective or uncaring customer service, billing confusion (make sure that the charge is identifiable to your customers, avoid billing under a name they may not recognize) and difficult cancellation processes (make it 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.

How to Reduce Chargebacks
Apart from attending to the issues mentioned above – good customer service, clear communications, and a solid understanding of chargeback ratio and its impact on your company, there are several additional things you can do to protect your business.

  • Flat fee merchant account: since your chargeback ratio is determined by the number of transactions divided by the number of monthly transactions, you can give yourself an edge by growing your business. The math is simple, just two chargebacks a month can really hurt a business with 100 customers, but won’t be nearly as problematic for a company with 300 customers. And, since a flat fee account charges you a pre-determined flat monthly fee and a flat per-transaction fee instead of a percentage of your monthly sales volume you can grow your sales without paying a big financial penalty for your success.
  • Chargeback reduction:software solutions can’t eliminate all chargebacks, but can significantly reduce them by monitoring for transaction errors, potentially problematic patterns, and other issues that often result in chargebacks.
  • 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 and screen suspicious transactions.
  • Pick the right payment processor: Working with a high-risk payment processor gives you a real edge. 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 credit repair companies and other high-risk merchants, providing a full suite of payment processing and payment gateway services that integrate with over 175 different shopping carts. T1 Payments provides flat fee merchant accounts and offers comprehensive account monitoring, reporting and support to help high-risk merchants mitigate 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.