How Credit Cards Effect Credit Scores – Selecting a Credit Card Processing Company

Paying with Debit Card

Dear M & M:

Are my credit cards lowering my credit score or helping it?

–Don

Dear Don:

There are several factors that all work together to hurt or help a credit score.

Payment history – A solid record of payments on time with no bankruptcies or late payments will help your score.

How much you owe – a credit report will look at all your accounts, balances and how much you are using. The more you owe compared to your credit limit the lower your score will be. Lenders like to see a big gap between the amount of credit you’re using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help; getting balances below 10% is even better.

Length of credit history – a longer credit history can improve your credit score. When you apply for a new credit card they check your credit history and your score could drop by a few points from the check (usually under 5). Showing a record of steady payments over time will improve credit scores.

Having a better mix – showing auto loans, home mortgages, and other forms of credit generally shows a longer credit history and can add to your credit score. Once again having too much debt can lower your score. As always pay on time, keep balances low, apply for new credit only if needed, and check your credit report regularly.  www.annualcreditreport.com offers a free credit report from each credit agency per 12 months.  Don’t fall for the myth that you have to carry a balance to have good scores. You don’t, and you shouldn’t. But having and using a credit card or two can really build your scores if used responsibly. Above all don’t mix personal credit with business credit on any of your credit cards.

 -M&M

 

Dear M & M:

What should I look for to determine who will process my credit card transactions?

–Billy

Dear Billy:

There are 5 main points to understand and use for comparisons when selecting a credit card processing company. They are listed in no particular order. Each point should be considered and as always this is not inclusive and does not cover everything that needs to be considered.  

Interchange Plus Pricing Structure: Interchange plus pricing means that your business pays a flat fee, plus a markup to the processor for services. This type of payment is the most consistent and doesn’t allow payment processors to issue hidden costs within tiered pricing. Make sure to look for majority, if not all of your service contract to fall under interchange plus pricing. This gives your business a more consistent way to plan for future cost of goods sold.

Exchange Rates: Your business is likely concerned about the price at which merchant services operate. Most credit card processors will take anywhere from 2% to 3.5% from each transaction. The type of exchange rate you are offered is dependent on a variety of factors, including how long you’ve been in business, the industry you operate in, and even your personal credit history.  

Cancellation Fee Structure: You would be surprised at the cancellation fee structure of many credit card processing companies. Fees can range from $200 to $2,000 to cancel. Make sure you read the fine print and understand exactly what the cancellation fee will be, should you decide to cancel your contract.

Account Policies: All credit card processing companies have different policies with their business accounts. Here are a few questions to ask a potential vendor: Are there any bank account requirements or restrictions you need to be aware of? Are there any monthly minimums? What are the charge back fees? How is batching done at the end of the day?  Can I access my account online? What is the swipe rate? Which cards qualify for this rate? What are the rates for VISA, American Express, and Discover and are there any credit cards that they do not process?

Equipment Costs: The cost of equipment is also something to take in to consideration. If your credit card processing company needs proprietary software, be sure to evaluate if they offer leasing or outright purchasing. Talking with a vendor will help match your needs with their service offerings. If you need to accept credit cards for a delivery service your needs will be different than a business who accepts primarily in-house credit cards. If you own a business looking for credit card processing there are a variety of different options available to you. To accurately assess all of your options, you need to talk with a few credit card processing vendors to enable you to make comparisons. Find out who other business owners are using and see if they are happy with their service providers.

 -M&M

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation (EDF) at 520-458-6948 or email  hollism@svedf.org .

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