How Chargeback Mitigation Can Reduce Risk and Increase Revenue

For many merchants, chargebacks become a major liability. When chargeback rates start to increase, merchants have two options:

1. They can accept the financial loss as a cost of doing business.

2. They can create a strategy to reduce risk and recover lost revenue.

The only way to ensure longevity and sustainability is the second option—chargeback mitigation.

What is Chargeback Mitigation?

Chargeback mitigation is the process of preventing chargebacks and challenging illegitimate transaction disputes.

Chargeback mitigation might include the following:

• Increasing the acceptance of valid transactions and decreasing false positives
• Decreasing the acceptance of unauthorized transactions
• Identifying the source of each chargeback
• Eradicating preventable chargeback triggers (such as merchant error)
• Challenging illegitimate chargebacks
• Improving industry relationships
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Each merchant suffers from different and unique challenges; therefore, chargeback mitigation efforts will need to be customized to address applicable threats. However, when executed effectively, the outcome of chargeback mitigation should include some or all of the following:

• Increased profits
• Recovered revenue
• Decreased costs
• Greater sales conversions
• Decreased declines
• Improved customer retention and loyalty
• Enhanced brand reputation
• Stronger industry relations
• Reeducated consumers
• Sustainable growth
• Sufficient payment processing capabilities
• Longevity
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The Two Sides of Mitigation: Prevention & Representment

There are two key components to chargeback mitigation: prevention and representment. Each plays a vital role in the process, and each calls for different technologies and bodies of expertise.

Prevention

Effective chargeback prevention is dependent on one simple responsibility: identifying the source of each chargeback. Solving the problem, rather than just treating the symptoms, yields unparalleled results.

If merchants don’t identify the source of the chargeback, they’ll implement inefficient strategies that target the wrong problem.

All chargebacks originate from one of three sources:

1. Criminals: Criminal fraud results in unauthorized transactions.

2. Customers: Illegitimate or unwarranted chargebacks are known as friendly fraud.

3. Merchants: Chargebacks are unknowingly instigated by unidentified merchant errors and oversight.

Within each of those three sources, though, there is a multitude of potential chargeback triggers. The problem might be anything from improperly-deployed anti-fraud technologies failing to identify criminal activity to minute policy missteps that have major customer service ramifications.

To address all three sources, merchants need to implement a comprehensive approach to chargeback prevention, with insightful human forensics and specialized analytic tools. By doing so, merchants can determine how threats interact and then assess overall risk exposure.

A comprehensive chargeback mitigation strategy might include the following tools:

• Anti-fraud technologies provided by card networks and processors—such as AVS, CVV, 3D Secure, blacklists, whitelists, velocity checks, and more—can reduce the risk of unauthorized transactions.
• Fraud filters analyze transactions, looking for known characteristics of fraud. Suspected criminal activity is detected and blocked.
• Chargeback Alerts allow merchants to refund transaction disputes before they progress into chargebacks.
• Merchants can accept more valid sales and prevent chargebacks by terminating transactions resulting from false consumer activity with Affiliate Fraud Alerts.
• Identifying the source of each chargeback with Intelligent Source Detection enables targeted prevention tactics.
• Merchant Compliance Review analyzes and rectifies internal errors, procedural shortcomings, and policy missteps that often lead to chargebacks.
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Representment

While merchants can prevent virtually all chargebacks caused by merchant error or criminal fraud, faulty consumer behavior and insufficient industry regulations have led to a third chargeback source that is much more difficult to avoid—friendly fraud.

For cases of friendly fraud, or illegitimate chargebacks, merchants must be prepared to take advantage of the second phase of chargeback mitigation—representment.

“Representment” refers to the process of re-submitting a transaction to the issuing bank, along with careful research and a body of compelling evidence, to prove the original transaction was valid. Successful representments will recover revenue that would have otherwise been lost while retraining faulty consumer behaviors.

Unfortunately, engaging in representment takes time and an extensive understanding of payment industry regulation. Most merchants do not have the resources or expertise to craft effective representment cases. Professional assistance can ensure greater success while also reallocate valuable resources to revenue-generating departments.

When is Professional Assistance Required?

Professional tools and expertise can increase the effectiveness of any chargeback mitigation efforts. If you are unsure about how and when to solicit assistance, consider the following:

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Industry regulations are updated regularly. A professional will have insight as to when these changes will take place, how internal processes will need to adapt, and the dangers of non-compliance. Your in-house team will need to carefully monitor regulations and implement changes to the best of their abilities, recognizing that outcomes might not be timely or successful.

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Adopting ineffective or incomplete solutions may actually make your chargeback problem worse. For example, if your blacklist is too restrictive, you’ll suffer profit-stealing false positives. However, being too lenient with fraud prevention will cause a sudden spike in chargebacks. A professional would be able to assist you by finetuning rules and processes to optimize success.

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Professional assistance is impartial, but you might not be objective enough to identify unintentional shortcomings or errors. A third-party analysis will reveal issues you might not be able to identify.

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Hiring a chargeback mitigation expert doesn’t need to be an all-or-nothing process. You can fully outsource responsibility, but that isn’t the only option available. If you’d like to retain certain responsibilities, you might consider on-demand services or available management software.

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Adding new chargeback mitigation products and processes doesn’t mean you’ll need to switch vendors or platforms. A true professional should be able to integrate with your existing payment processor, gateway, CRM, and fraud filter.

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It’s important to note that not all chargeback mitigation experts are the same. In fact, some aren’t “experts” at all—they increase challenges instead of mitigate them.

SCU truly is an expert at chargeback mitigation—one of the first vendors on the market and the only service provider with real-world, first-hand experience as a merchant. We are a recognized leader and innovator in the science of chargeback mitigation, having created a host of solutions to address the various threats and their sources.

With our proprietary technologies, research-backed expertise, and unparalleled insights, merchants can trust that their business is in excellent hands.

Contact SCU today to learn more about your chargeback mitigation options.

How Does an Auto Repossession Affect Your Credit?

When you become overwhelmed with bills, you find yourself making a choice between buying food, paying the electric bill or making your car payment.  If your immediate needs indicate that it’s time to choose to spend your money on something else other than your auto payment, the repo man may show up at your door fairly quickly.  What happens to your credit when this happens?

When Can A Repossession Happen?

The laws that govern repossession vary from state to state.  However, most of them allow immediate repossession once you breach the terms of the contract, in some cases, this happens when you miss the first payment.  Some states spell out the amount of time you have before a payment is considered late, example: West Virginia specifies a 10-day period.  Another term of a contract that you can violate which will set into motion the wheels of repossession is failing to keep up your car insurance. Should the creditors routinely accept late payments, some states say this is a modification of the terms of the contract, as the creditor accepted late payments without complaint.  If your payment schedule is causing you trouble, you can also negotiate new contract terms in the form of a changed repayment schedule and usually this is given to you in writing.

Once a contract is breached, most likely you will need to pay off the entire balance of the loan; most creditors accelerate a loan when a borrower defaults. The acceleration clause in the time of default is typical in an auto loan contract.

If a repo man shows up to repossess your car, they must do the repossession peacefully.  This means that the people sent to collect the property may not use force against you, enter your home or enclosed structure like a garage, threaten force against you or take the car over your protests.

A creditor does not have to go to court in order to repossess your property if the car is out in the open, like your driveway or a public lot.   The repo man would need a court order, though, to get into a garage, home, or enclosed area.

What Happens After A Repossession?

In most cases the creditor will sell the property and apply the sales proceeds towards the debt.  The creditor must notify you of the date and time of the sale and you will be allowed to bid on the car.  Before the sale of the car, you can try and negotiate with the creditor to pay the back payments and possibly retrieve the car.  However, if the loan has been accelerated, you’ll need to pay back the entire amount of the loan.

If the sale of the property does not net enough money to cover the balance of the loan, what is remaining will be called a deficiency balance.  You will be sent a bill for deficiency balance, and if you cannot pay the bill, it will be sent to collections.  If the collectors have no luck collecting from you, you could find yourself being sued over the balance.

A Repossession Will Sink Your Credit Score

There are four ways that a repossession can tank your credit score, and you may have all of them on your credit report by the time you are done:

Late payments. On the road to a repossession, you must have missed a payment.  While some creditors can start proceedings when you are late by even a few days, most banks will allow you to go 60 days or more before they send the repo man out to collect the car.  This means that you will have a 30-day or 60-day late payment on your credit report, something that can damage your credit score by up to 100 points.

The repossession. A repossession will show up on your credit report under “current manner of payment. ”  It can also show up in the form of codes placed next to your account listing, for example a code 08 means repossession, and 8A means a voluntary repossession on a Transunion credit report.  A repossession can tank your credit score by as much as 100 points.

Collections.  If you have a deficiency balance after the sale of your vehicle, as we mentioned, you could wind up with a collections account. A collection on its own can be very negative, but if you already have a repossession on your credit report, having this additional collection will probably not sink your score much lower – though it will drag your score down further.

Judgments.  If you are sued and lose in court over the deficiency balance (which is very likely), you will wind up with a judgment against you.  Judgments are very damaging to your credit, and even with a repossession on your credit report, can be a significant additional hit to your credit score.

How to Avoid a Repossession

No one likes repossessions, not even the bank and they will usually do what they can to help you avoid a repossession.

Ask Them If You Can Skip a Payment.  It’s not as crazy as it sounds – banks will often allow you to skip a car payment if you’re not already late on the loan.  Know that Interest will continue to accrue and you will be paying extra over the original payback total on the loan.  Banks will often allow you to skip up to 2 payments and this could make all the difference in your being able to keep the car and catch up on other bills.

Refinance the Loan.  If your credit is not already bad (meaning you’re current on this and your other loans), you may be able to refinance the car and stretch out the payments so you can lower them.  Refinancing has the added benefit that you may be able to skip a payment on the loan while you’re in between being financed on the loans.

Sell the Car Yourself.  If you have heard stories of cars being sold cheaply at auction, believe them.  Repossessed cars typically get sold at auctions for a fraction of what they’re worth.  If you’re close to being upside down, or if you are upside down and you don’t want to face a big deficiency balance, you can always get more for the car in a private sale.   However, if you are upside down, you will need to come up with the difference in the sales price and loan balance in order to get the bank to release the title on the car so you can give it to the new owner.

What are the Differences between the VantageScore and the FICO score?

Having a good credit score is important to every American as it affects many things we encounter in our daily lives: credit cards, loans and even car insurance.  There are many places you can get a credit score: your bank, online and you may even be given a summary of your scores when you apply for a new loan.  You may have heard the term FICO score and VantageScore: which score are you getting and does it matter?

The FICO score

Before the credit scoring system, bankers accessed a person’s credit by weighing such factors character, relationship with the bank, reputation and whether they paid their bills on time.  They didn’t have any quantitative way to analyze whether or not a customer was a good risk: lenders had neither the predictive data nor the math to calculate a customer’s ability to pay back a loan.  This changed in the 1950s, when Bill Fair, an engineer, and Earl Isaac, a mathematician, got together and laid out the foundation for what would be the FICO credit score.  The company they founded was called Fair Isaac (it was renamed FICO in 2009).  The score was initially a flop; they only had a few customers in the beginning and they struggled to market the concept of computerized credit scores.  The technology and methodology of data collection was improved over the years and eventually, in the 1980s, the credit score became available to most lenders, and was widely adapted to screen prospective credit applicants by 1995.

There have 7 versions of the FICO score released over the years, the latest being FICO 9. In addition, there are many different “flavors” of your FICO score, like a score tailored to the auto industry, the credit card industry and score models designed with other loan products in mind.

VantageScore

Credit scoring is big business.  Not only do lenders buy the scoring models, but credit scores are sold to consumers. For a while, FICO had a real monopoly on the sale of credit scores and credit score models.   In an attempt to compete with FICO, the credit bureaus developed their own scoring system, the VantageScore.  VantageScore has had 3 incarnations: VantageScore 1.0, VantageScore 2.0 and VantageScore 3.0.

Initially, the VantageScore point system scored between 500 and 950, but to win over more customers,   they thought it best to mimic the FICO system score range of 300 – 850.

Which Score am I Seeing?

As we mentioned, there are many versions of both the FICO score and the VantageScore.  Lenders are slow to adopt new technologies, so while FICO 9 has been around for a couple of years now, most lenders are still using FICO 08 or even FICO 04.  Where you get your credit score matters; if you get your credit score from:

• A lender during the course of the loan, you will most likely be getting a FICO credit score. Which flavor of the score you are seeing depends on the loan product for which you are applying.
• Your credit card statement, you are getting your FICO score.
• A website to get a free credit score, like Credit.com, bankrate.com, creditkarma.com or credit sesame, you are going to get your VantageScore.
• Credit bureaus, you will get your Vantage Score.
• com, you are getting your FICO score.

Differences in Weighting Factors

The FICO score weighs dozens of factors, but each of these factors falls into one of 5 groups.  Each of the groups of factors affects your credit score approximately by these percentages:

• Payment History: 35% of your score
• Amount of Credit Used: 30% of your score
• Age of Accounts: 15% of your score
• New Credit: 10% of your score
• Credit Mix: 10% of your score

The VantageScore was really a “from scratch” design, and as a result, it weights things differently than the FICO score:

• 32% payment history
• 23% credit utilization (amount of credit used/divided by credit limit)
• 5% balances
• 13% depth of credit
• 10% recent credit
• 7% available credit

Other Differences

The math and formulas for the credit scoring models is a closely held secret, so all the differences between the two cannot be definitively given.  However some things are known:

• In the older versions of the FICO score (an older version will most likely be used to calculate your score at lenders), paid collections count negatively against your credit score. In the newer version of VantageScore, (3.0), paid collections do not count against your score.  Once lenders adopt FICO 9, you will not be dinged for having a paid collection when you and/or lenders review your credit score.
• There are differences in how old data must be in order to register in the scoring calculation. VantageScore can score data that’s as new as only 6 months old; FICO usually requires a year’s worth of data in order to calculate a score.
• The FICO scoring model also uses “buckets” when calculating credit scores. With a bucket, consumers with similar credit histories are put into categories with maximum scores.  Even if other credit scoring factors improve significantly, you are never going to get higher than that maximum score.

In Conclusion

FICO says that 90% of lenders use their credit scoring model and this should speak for itself.  VantageScore may see wider adaption by creditors in the future, but as of yet the score is used in relatively few lending situations.  Credit scores only matter when you are applying for loans; in addition, a credit score is only good for the instant in time it was calculated: scores change frequently.  Generally speaking, you will never see the actual credit score that the lender used to evaluate your candidacy for a specific loan product unless the lender shows it to you.  The scores you may get at free websites or even ones that you buy online are an indication of your credit health.  If you feel as though your credit score is too low or your overall credit needs a boost, it may be time to seek some professional credit repair.

What You Must Know If You Just Got Your First Credit Card

Are you excited by getting your first credit card, as if whatever you charge is magically free and the credit card is some kind of license to spend? That mindset could automatically start you off on the wrong foot with your credit.

According to an Experian Survey released last year and updated in 2016, the millennial generation (which includes you if you’re in your 20s, when you’re most likely to get your first credit card) has the lowest credit scores out of all the generations. In fact, 67% of those polled did not understand how credit scores are computed and they have a habit of thinking their debt is not as bad as it is and that their credit scores are better than they are.

According to the Experian score categories, a good (prime) credit score falls between 661 and 780 but the surveyed millennials thought their score was 654 (considered non-prime credit) when it was really 625 (dangerously close to the sub-prime credit score cut-off at 600).

In 2016, 68% of millennials were carrying debt (including student loan debt), more than half had already had problems spending and making payments on their credit cards and 64% believed their debt is holding them back from achieving their life goals.

Here’s what you must know before you whip out that new credit card, swipe it for the first time and make millennial credit card mistakes that could possibly screw up your credit.

Your credit card is not cash (for when you don’t have any)

Getting a credit card should not change your financial situation or your monthly budget in any way (although handling credit responsibly will earn you the best interest rates when you go to borrow money for a future car loan or mortgage).

Many people mistakenly treat their credit cards as an extension of their income and purchase things they want or need with a credit card when they don’t have the cash.

When you spend more than you can afford to pay by the payment due date, you carry the balance to the next month and the interest rate is charged and added to your balance which makes the balance grow. It is easy to max out your credit cards very quickly this way, which happens when you hit the spending limit on the card.

This puts stress on your budget and causes your credit score to go down substantially as lenders like to see a history of credit use that is at least below 30% (and often below 15%) of the credit available to you.

The only way to avoid this negative spending pattern is to only charge what you can afford in cash and pay it all off before the payment due date and the only reason is for building a good credit history.

Your credit card is not an emergency fund

Many people say they got a credit card to use “only for emergencies.” In fact, the Experian data found that nearly half (46%) of millennials maxed out a credit card by using it for an emergency. Even if you only used it for true emergencies (flat tire, burst water heater, medical deductible payment) your balance would build quickly and the interest charged would cause it to compound and grow even higher every month, making it difficult to pay off and impossible to use for the next emergency.

Responsible credit use means protecting yourself from charging on credit cards for emergencies by saving up a cash emergency fund. Even a few hundred dollars to start can cover common car emergencies such as flat tires and new batteries.

Due dates are not a request

According to a 2012 VantageScore report about how credit behaviors affect credit scores, one late credit payment can cause your credit score to drop substantially (from 60-120 points) into the next lowest credit category depending how high your starting credit score was and whether you missed the heavier-weighted auto loan, mortgage or student loan payment. The longer it takes to make that payment (30 days versus 90 days), the deeper your score drop and your score will continue to decrease as long as your payment is not received.  Late payments are a huge part of your credit score (representing 35% of a FCIO credit score). As shown by the VantageScore report, it can take approximately a year to recover your credit score from a missed payment once the account is up to date on payments.

But ruining your credit is not the only problem with paying late as it can affect your balance substantially, too. Due dates are actually a demand for payment by that date (not a request) and most credit card issuers charge late payment penalty rates and fees. Late fees are capped by law at $27 for the first offense and as high as $37 for repeat late payers. Card issuers can raise your interest rate (called a penalty rate or the default rate) up to 29.99% on new purchases for missing a payment and after 60 days of a missed payment, that penalty rate can be applied to your entire balance owed.

Always make payments before the payment due date.

Paying just the minimum payment due is not responsible credit use

This is no secret. Bold type on top of the billing statement on my Capital One credit card reads:

“If you make only the minimum payment each period, you will pay more

in interest and it will take you longer to pay off your balance.”

Because paying your bills on time, as we just discussed above, represents a big portion of your FICO credit score you (like 42% of other millennials surveyed) may think paying your minimum payment on time each month is all you need to do.

But, the minimum payment due only represents the lowest amount your card issuer will accept on your balance, which often only amounts to about 3% to 5% of your total balance. Most of your minimum payment goes to paying down interest and fees which means you will be carrying debt that is hardly reduced (if no other fees or purchases are added) while making your minimum payments.

Always pay more than the minimum due when trying to pay off a balance. A best practive is to pay off the balance in full each month to avoid paying any interest or late fees.

How to avoid making mistakes with your first credit card

Careless spending can get you into credit trouble. In 2016, the Experian survey found 53% of millennials did not know their interest rate, 32% did not know their spending limit and 29% had already maxed out a credit card. Of those who maxed out a card, 39% did so because they were unaware of their spending limit and 38% were not aware of how much they were spending. Don’t let that be you.

Once you receive your new credit card in the mail, note your payment due date and find, review and save the Schumer Box included in your new credit card agreement. This grid shows you all the pertinent facts about the credit card including the interest rate, introductory rates and when they end, credit limit, annual fee, grace period, fees, penalties and more. Note your credit limit, interest rate and grace period and mark your payment due date down in a calendar or set up payment due alert texts so you never miss a payment or max out your new credit card.

According to the Experian data, more than one in every three millennials also thinks it is unnecessary to check their credit report or their credit score, but once you have a credit card you want to be sure your account is being reported to the credit bureaus accurately. Check your credit reports yearly at annualcreditreport.com (the only free service authorized by federal law), monitor your credit score monthly for any substantial changes at one of the free credit score services and learn more about how you can use credit to your advantage.

Should You Ever Agree to Debt Settlement, Part One

Have you heard that there could be a way to pay less than the amount of a debt that you owe?

You may have even heard this on the radio or seen ads online. For-profit debt settlement companies will advertise that they can negotiate with your creditors to allow you to pay a “settlement” to resolve your debt which is less than the full amount you owe, according to the Federal Trade Commission (FTC).

That sounds like the perfect solution to your debt problem but the FTC points out there are many complications with these companies that can actually worsen your debt, your finances and your credit.

A warning from the Office of the Comptroller of the Currency states, “You cannot eliminate an obligation to pay a debt, simply by paying someone a fee regardless of the amount you owe.”

From personal experience, I can tell you there are better ways to accomplish paying less to pay back your debts and get them paid off.

Here’s what you need to know.

Problems with debt settlement companies

Both FTC and the Consumer Financial Protection Bureau (CFPB) have fielded an overwhelming amount of complaints from consumers about debt settlement companies so I’ve outlined some of the many risks in working with a debt settlement company.

• You pay the debt settlement company all the money before debts are settled. Most of these companies operate by setting up an account for you to deposit money into so you can accumulate enough money for the company to negotiate a settlement with your creditors.
• Debt settlement companies charge fees. These services are for-profit and they charge higher fees (for each debt settled) than other options you have for settling your debts. According to the CFPB, charging upfront fees for these services is generally prohibited by existing law.
• Debt settlement can take several years: Typically these payments last for 3 years or more. But life is unpredictable and you run the risk of not being able to keep up with those payments. If that happens you can be dropped from the program before any debts are settled.
• Collection agencies are not obligated to settle debts for less than you owe. There is no guarantee your creditors will accept a settlement or that your debts can actually be settled.
• Debt settlement companies try to settle small debts first. That’s because you can accumulate these amounts quicker and pay off small debts faster. But, the settlement does nothing to stop interest and fees from accruing on large debts which actually causes your debts to keep growing while you are accumulating settlement amounts.
• You stop paying and communicating with the creditor. Debt settlement companies require you to send payments to them and any of your creditors who do not agree to the program will continue reporting you delinquent or defaulted and even try to continue calling you or even suing you to collect the debt. Also, your credit score will tank if that happens as you will be reported as defaulting on a credit account, even though you are making payments to a settlement company.
• There are a lot of debt settlement scams. If the companies charge you their full fees before settling debts or make promises they can’t deliver or guarantee or offer to settle your debts for outrageously low amounts, beware of scams.

Better ways to settle debts legitimately

You have some other options to settle or pay off your debts for less money in legitimate ways.

• Settle for less with collections agencies directly using a lump sum payment. If you receive a tax refund, inheritance, insurance settlement, gift, bonus or any type of windfall, you can call up the collections agencies for your loan debts, credit card debts and even medical debts and directly ask them yourself if they will accept a lesser amount if you paid a lump sum. Many times creditors may agree to accept less than owed and you would be doing this to pay less than you owe and also to get them agree to report your account as “satisfied” or “paid as agreed” to the credit bureaus.

You’ll want to do this with the newest debts first (if you have several) as these are hurting your credit report the most. Be aware that if old debts in collections have fallen off your credit report (7 years after the date of the last payment) or they are beyond your state’s statute of limitations for creditors to collect on the debt that you may not need to pay it at all. Any payment on that type of old debt resets that statute of limitations allowing the creditor to begin collecting on the debt and reporting it to the credit bureaus again.

• Enter a debt management program. A debt management program is not a debt settlement company and instead is managed by a legitimate non-profit credit counseling agency (visit the National Foundation for Credit counseling agency locator tool, to find a reputable local agency) whose mission is to help you pay off your debts for free or a very low fee, depending on your income. Either in person, over the phone or online, a credit counselor reviews and evaluates all your income, debt payments and fixed expenses to figure out what payment you can afford to make to the agency which they will disburse to your creditors every month. These reputable non-profit agencies have agreements and relationships with most credit card and other loan companies and will additionally negotiate reduced fees and interest rates to allow you to pay off your debt faster for less money, as long as you stick to the program.

Not only can you get your debts paid off as quickly as possible in a way you can afford, but you also exit a debt management program with improved credit as all your debts are reported, “paid as agreed” for the duration of your program. You may find you can be approved for a mortgage or a car loan after successfully completing a debt management program.

Remember: Debt settlement costs money in higher fees and higher interest payments and creditor fees with no guarantees debts can be settled and can hurt your finances and your credit. A debt management program works legitimately with your creditors first and may cost very little or nothing while it improves your finances and your credit if you complete the program.

Now that you know how debt settlement companies can hurt your finances and the difference between debt settlement and a reputable debt management program, you will never fall for a debt settlement scam.