If you are here, you are looking for the answer to: what does underwriting mean? There are many types of underwriting: bank underwriting, insurance underwriting, and securities underwriting.
For this article, we are going to focus on bank underwriting, but they all follow the same basic process.
There are the following steps:
Within these four stages is the magic of underwriting. The story below will help illustrate ‘what does underwriting mean?’ Let’s follow Tara on her journey to get credit card processing capabilities for her vitamin business.
Nutraceutical Credit Card Processing
Tara is a nutraceutical consultant who works on Kodiak Island just south of the flower pot designer named Olivia. [See more about Olivia, the artisan flower pot maker, in the last post: What does Chargeback Mean?]
After purchasing a very unique flower pot online from Olivia, Tara found out that Olivia suffered with occasional insomnia, partially from the anxiety of running her own business.
Tara drove to Port Lions to show Olivia her new brand of nutraceuticals. Nutraeuticals are private label vitamins that Tara swears will help Olivia. There is also a guarantee that if the vitamins do not work, Olivia’s money would be refunded.
Because the nutraceutical industry has a stigma of fraudulent transactions and charge-backs surrounding it, it falls under a high-risk merchant account status.
Therefore, Tara is going to need to find a high risk credit card processing bank to underwrite her application for merchant services, so she can accept credit cards and keep her business flowing.
Like many business owners, Tara is looking for a high risk merchant account with instant approval. While there may be certain credit card processors who offer this, this article will explain why it is a bad idea.
Tara is filling out applications with many banks to try to get approval for her merchant account. Each time, she is hurting her credit report that much more.
The Underwriting Department Is Going to Review the Application
What does underwriting mean to the team involved with investigating Tara’s worthiness for a credit card processing account? The underwriting team is going to gather as much data as they can during the review process. They want to know if the information provided on the application is accurate.
They want to know what the credit reporting agencies say about her credit history. And they want to know if Tara would be likely to defraud the bank by processing fraudulent transactions, or not fulfilling customer orders.
What Credit Report do Banks Use?
There are three agencies that are known to have data about each person’s credit history, Equifax, Transunion and Experian. When it comes to underwriting, all three agencies data could be pulled and aggregated together.
Tara wanted a to find a short cut to find out which of the credit reporting agencies is the most used, but she puts herself at risk of leaving a negative mark on the credit report for adding unnecessary inquiries.
What is a Judgement on Credit Report?
A judgement is a court case that went through to some sort of action. This will be on your credit report for 7 years.
Tara is trying to obtain a merchant account, but past judgments will affect her ability to get a standard bank to help her. Tara really needs to fix her credit on all the reporting agencies, as well as be selective with whom she applies.
What is the Risk of a Merchant Account Holder?
A bank underwrites a merchant because it is trying to calculate the risk involved with the respective business. This risk translates into whether Tara receives a merchant account approval, in addition to the per-transaction rate she will pay, the monthly fees for the account, as well as any potential hold-backs or reserve requirements.
What does underwriting mean to Tara? The less risky underwriting perceives Tara’s business to be, the more willing a merchant gateway provider will be to work with Tara.
What is a Secured Credit Card?
A secured credit card is a charge account that is secured by a deposited amount of money. The credit account holder places a certain amount of money in a separate bank account, used as collateral in order to reduce the risk on the part of the lender.
Once trust has been established by making payments on time, the lender can upgrade the borrower to an unsecured credit line.
It is a good thing that Tara has an aggregate credit score of 670!
What is a 670 Credit Score?
A credit score of 670 is a good credit score. It means that Tara is a good risk to approve her nutraceutical business. According to a high risk merchant account forum, 670 is an excellent score for getting fast approval for your business.
Some Merchant Account Providers Want Exclusivity…But Not High Risk Solutions.
It makes sense that once a lender finds out that you are a good risk to do business with, they want to keep you for as long as possible.
Some credit card processors require you to be exclusive with them, for all of your transactions. HighRiskSolutions.com never requires exclusivity. They prefer to earn your long-term business by providing outstanding support and service.
Tara’s nutraceutical business is exactly the kind of merchant that High Risk Solutions wants to approve. Having a long-term relationship is a win-win for both parties…and the ideal situation.
High Risk Solutions is US-based and provides top-rated online payment services. The Small Business Administration (SBA) recommends that businesses have multiple methods of payment in order to secure the most revenue possible.
With the assistance of High Risk Solutions, these methods become conveniently available for your business.
What does underwriting mean for a business like HighRiskSolutions? It means that this merchant account provider is willing to help your high risk business find and maintain the best option for your credit card processing needs.
At Last, There is the Reward
Tara decided to go to High Risk Solutions on the recommendation of her new friend Olivia. By doing this, Tara was able to find the absolute best fit for her payment gateway needs.
This is really the part that most high risk industries struggle with, and High Risk Solutions wants to reward those who try hard to succeed.
What does Underwriting Mean for Tara with High Risk Solutions on Her Side?
Tara would have her application reviewed by HighRiskSolutions merchant account experts to determine which processing bank would be most suited to her business type. This protects Tara’s credit score allowing her to show as a better risk to the bank underwriting team.
Once Tara is approved, she is able to easily accept all major credit cards and the funds from her transactions appear in her bank account automatically, within 3 business days.
Get started with your application below!