Credit Repair Chargebacks 101

Credit repair chargebacks are something most companies in the industry deal with non-stop. While the credit repair industry can be highly profitable, chargebacks must be taken seriously, and measures must be implemented to minimize them. 

At CB-ALERT, we work with credit repair companies to lower their chargebacks and put measures into place through data analysis so that merchants understand why chargebacks are occurring in the first place.

Credit repair companies work hard to remove inaccurate information from credit reports and improve customers’ credit scores. However, high chargeback rates due to customer dissatisfaction have plagued the industry. Strict regulations and unrealistic customer expectations also contribute to chargebacks. The need for industry standards and adequate compliance guidelines further exacerbates the problem.

There are three things credit repair companies can do to deal with chargebacks:

1. Do nothing and suffer revenue losses.

2. Fight chargebacks in-house (with certain conditions).

3. Outsource to a chargeback management company.

Outsourcing can provide valuable analytics and expertise to increase your chargeback win rate. Let’s dive into what credit repair chargebacks are, why they happen, common reasons for them, how to prevent them, and why hiring a chargeback management company might be your best bet.

What are credit repair chargebacks?

credit repair chargeback infograph

Credit repair chargebacks occur when customers dispute charges from credit repair companies. These disputes typically arise from dissatisfaction with the results, contributing to the industry’s high chargeback rates.

Customers may initiate chargebacks if they don’t see the expected improvement in their credit scores or if they feel that the services provided haven’t met their expectations. The credit repair industry suffers from customer dissatisfaction and low trust, further contributing to these chargebacks.

The increase in chargeback rates can also be attributed to stricter regulations. Customers are now more aware of their rights and are quick to dispute charges if they feel they have been misled or deceived. Unrealistic customer expectations and inadequate industry standards worsen this issue.

To address these concerns and improve customer satisfaction, merchants in the credit repair industry must find effective solutions to mitigate chargebacks.

Why Do Credit Repair Companies Receive More Chargebacks?

When it comes to credit repair companies receiving more chargebacks, there are several key factors to consider.

First, customer expectations play a significant role in the high rate of chargebacks. Many customers have unrealistic expectations about the immediate and dramatic improvement of their credit scores, leading to dissatisfaction and disputes.

Additionally, most deals with credit repair companies take place over the phone, making it challenging to verify customer identity and exposing merchants to fraud chargebacks.

Lastly, the credit repair industry is still relatively new and needs more industry standards and compliance guidelines, which can contribute to higher chargeback rates.

Let’s take an even closer look at these reasons below.

Customer Expectations

Unrealistic customer expectations can contribute to high chargeback rates in the credit repair industry. It is important to understand that achieving significant improvement in a personal credit score takes time and effort. 

Here are four reasons why customer expectations play a role in chargebacks:

1. Misunderstanding of the process: Customers may need help comprehending the steps involved in repairing their credit, leading to frustration when results don’t materialize quickly.

2. False promises from companies: Some credit repair companies make unrealistic claims about what they can achieve, setting customers up for disappointment.

3. Lack of education: Many consumers need to learn how credit scores work, causing them to have unrealistic expectations about what can be accomplished.

4. Comparison to others’ experiences: Seeing others achieve rapid credit score improvement may create false hope and unreasonable expectations.

By managing customer expectations through clear communication and education, credit repair companies can minimize chargebacks and build trust with their clients.

Most Deals Take Place On The Phone

You’ll often find yourself making transactions over the phone to get the best deals and personalized service. However, this payment method can also expose merchants to fraud and chargebacks.

Regarding credit repair services, most deals are conducted over the phone, which further increases the risk of chargebacks. The challenge with phone transactions is verifying the customer’s identity, as there is no physical interaction or face-to-face verification.

This leaves merchants vulnerable to fraudulent transactions and subsequent chargebacks. Additionally, customers may dispute these charges if they are dissatisfied with the credit repair results or feel that their expectations were not met.

Industry Is Still Rather New

Despite being a relatively new industry, credit repair has quickly gained attention as a means to improve financial well-being and overcome challenges in obtaining loans or high-risk merchant accounts. As the industry continues to evolve, it faces several key challenges:

  • Lack of established standards: With no major governing association or influential publication, credit repair companies need help to define best practices and compliance guidelines.
  • Limited consumer trust: The industry’s reputation is marred by false promises and failure to deliver on results, resulting in low customer satisfaction and trust.
  • Stricter regulations: Heavy regulation has been imposed due to the lack of trust in the industry, leading to increased chargebacks for credit repair companies.

Most Common Reasons For Credit Repair Chargebacks

One of the most common reasons for credit repair chargebacks is when customers claim they did not authorize the transaction. This can happen if a customer disputes the charge on their credit card statement, stating they did not consent to the credit repair service. It could be due to a misunderstanding or fraudulent activity.

In some cases, customers may have forgotten about authorizing the transaction or failed to recognize the merchant’s name on their statement. To combat this issue, merchants must ensure clear communication with customers and provide detailed authorization records, such as signed service agreements or order invoices.

Implementing additional security measures like two-factor authentication can also help prevent unauthorized transactions and reduce the risk of chargebacks in the credit repair industry.

We also recommend implementing the following:

How To Prevent Credit Repair Chargebacks

All credit repair companies should implement the following strategies to manage chargebacks effectively:

  1. Utilize robust fraud prevention tools: Incorporate advanced tools like 3DS2 authentication, RDR (Risk and Decision Rules), and chargeback alerts to combat fraudulent activities proactively.
  2. Establish a clear merchant descriptor: Enhance your company’s visibility on statements using a precise and recognizable merchant descriptor. Ensure that your descriptor accurately reflects your credit repair business.
  3. Partner with CB-ALERT: At CB-ALERT, we specialize in assisting credit repair companies in preemptively dealing with fraudsters and preventing fraudulent transactions.
  4. Implement Customer Authentication: Implement customer authentication measures to strengthen your defense against chargebacks, as it enhances transaction security and verification.
  5. Provide exceptional customer service: Swiftly respond to customer inquiries and diligently resolve issues to maintain high customer satisfaction levels, minimizing the likelihood of chargebacks due to dissatisfied customers.
  6. Offer refunds when appropriate: In many cases, refunding is more cost-effective than facing a chargeback. Refunds also improve the chances of retaining the customer.
  7. Verify customer funds: Prioritize verifying customers’ financial capabilities before allowing them access to credit repair services.
  8. Maintain accurate records: Keep detailed records of all credit repair transactions, including customer contact information, order details, and communication history. These records serve as valuable evidence in chargeback disputes.
  9. Monitor and address chargebacks promptly: Utilize chargeback alert systems to monitor and respond quickly to potential chargebacks, preventing them from escalating into more significant issues.
  10. Conduct IP verification: Stay vigilant for unusual orders from unfamiliar locations or significantly higher transaction amounts than usual. Perform IP verification to ensure the legitimacy of such transactions and prevent potential chargebacks.

Hire A Chargeback Management Company To Stop Chargebacks

Hiring a chargeback management company can significantly curb your chargebacks and clarify why they’re occurring.

Here are three reasons why hiring a chargeback management company is beneficial:

1. Expertise: Chargeback management companies have extensive knowledge and experience in dealing with credit repair chargebacks. They understand the intricacies of the industry, regulations, and card network rules, allowing them to build strong cases for representment.

2. Analytics: At CB-ALERT, we have advanced analytics tools to identify patterns and trends in chargebacks. By analyzing data, we can uncover underlying issues that lead to chargebacks and implement strategies to prevent future occurrences.

3. Increased Win Rate: Outsourcing your chargeback management to professionals can significantly increase your chances of winning disputes. Chargeback management companies have established relationships with issuing banks and know how to present compelling evidence that meets their evaluation criteria.

By partnering with CB-ALERT, you will save time, money and stay alert while preventing credit repair chargebacks.

Scroll to Top