How to get a surety bond when you have bad credit

Published by admin | Filed under Bonds

As a contractor, you know the importance of surety bonds.  They can often mean the difference, after all, between getting that large contract and losing it since consumers are increasingly educated about surety bonds and understand that they provide a measure of protection to the consumer.   But what happens when your credit is less than spectacular and you’re pretty sure that you’re going to have a very hard time obtaining a surety bond?

First of all, how do you know if you have bad credit?  For the purpose of surety bonding, a score under 650 is generally considered to be less than desirable.  If you’re not sure what your credit score is, consider logging on to one of the credit reporting agencies and checking it before you begin the bonding process.  Additionally, liens against you or your business will have an effect on your ability to get a surety bond, as will prior bankruptcies, civil judgments, unpaid collections, late child support, late alimony payments etc.  In short, there are several potential credit pitfalls that could prevent you from getting a conventional surety bond. 

The big difference in poor credit surety bonds is that you’ll probably need to get the bond itself from a bond company rather than an insurance company.  There are companies who specialize in granting surety bonds to people who have less than stellar credit.   Often, online outlets are a good source for poor credit surety bonds since many online companies work with multiple bonding companies.  Finding an agency who works with more than one bonding company ensures that you are able to find a carrier who will insure you, first of all and, second of all, that you can get the best possible interest rate on your bond.  As you’ve probably guessed, people with poor credit are going to pay slightly higher interest rates than those who have good credit, mostly due to the risk that the bonding companies are taking by insuring higher risk populations.  You can expect anything from 3% to 20%, though rates have been falling steadily in recent years.

When it comes to actually obtaining your bond, make sure that you get several quotes.  Shopping around will ensure that you have the best rate.  Additionally, when you do decide on a company, the underwriter should be responsive and able to turn your application around in a few days.  Just as with any large purchase, it’s important to be an informed consumer and shop around for the best deal.