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New standards give merchants with bad credit a reason to smile

If you’ve been doing business for more than a minute, then you know what it means to have a good credit score, both business and personal. Anyone looking to lend you some form of financial service will likely want to have a look at your credit rating. Poor credit often limits your chances of scoring a loan, acquiring a merchant account, convincing a potential investor, or getting favorable payment plans from your suppliers.

That said, a change of policies from the three major credit reporting companies – TransUnion, Experian, and Equifax – promises to bring some relief to merchants with low credit scores. The agencies recently stopped listing information about tax liens, civil cases and bankruptcies in credit reports, unless the records can be solidly connected to the individual involved.

Therefore, you will never need to worry about the numerous mix-ups that characterize these three records negatively affecting your credit score.


How credit score works

To understand the change entirely, it’s perhaps a good idea to reflect on what credit rating entails.

If you own a business or personal bank account, then you probably already have a credit file with the credit reporting agencies. These companies collect information from a variety of sources, including banks, mortgage lenders and payment processors. They also receive data from public records like taxes and civil judgments.

The credit reporting firm then matches the information to your file and uses a modeling software to generate the score. Personal credit ratings typically range between 300 and 850 and business scores from 0 to 100. The higher the number, the more creditworthy you are.

Financiers rely profoundly on these scores to assess how likely an applicant is to adhere to the terms of the contract. If your personal credit is below 630 or your business rating is lower than 50, only those specializing with high-risk funding or bad credit merchant accounts will be willing to work with you.


What’s changing

As per the new guidelines, credit reporting agencies will not be including public records in credit reports, unless the records include a name, address, and social security number to match them to a particular file. The standards apply to the past, present and future reports, and the firms are required to update all public record information every 90 days.

According to LexisNexis Risk Solutions, most public records don’t meet the new identification criteria, but they’re still included in the reports. With the new standards in place, the many errors associated with tax liens and civil records will be averted. If you were among those affected, you could soon be seeing a bump up as high as 40 points on your credit score.


An extra burden on financiers

Although every player involved is welcoming the new changes, some financial institutions are expressing concern that omitting public reports without checking if they are accurate could give eligible merchants a free ticket to business loans and payment processing services.

Therefore, there’s a good chance that mainstream financiers may go back to the drawing board to try and make their underwriting process foolproof. The sudden increase in your credit score may not exactly guarantee you the services you need. Thankfully, high-risk payment processors like eMerchantBroker are not going anywhere.

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