Bad credit surety bonds are a type of financial guarantee, which allow potential business owners to meet the regulations established by their local governments, even with bad credit.
There are many types of business in which posting a surety bond is a legal requirement. Therefore, bad credit surety bonds are a useful way of creating a financial middle ground, and a flexible form of insurance, in which potential clients have access to financial protection even if potential business owners have credit issues.
In this article, we’ll explore what bad credit bonds are, how they work, how much they cost, and how you can obtain one.
Questions about Bad Credit Surety Bonds
- What is a Bad Credit Surety Bond?
- What is Considered Bad Credit?
- How Does a Bad Credit Surety Bond Work?
- Who Should Get a Bad Credit Surety Bond?
- How Do I Get Bonded with Bad Credit?
- How Much Does a Bad Credit Surety Bond Cost?
- What Will My Bond Cost if I Have Bad Credit?
- If I Have Bad Credit, How Can I Lower My Rate?
- If My Credit Improves, Will My Renewal Rate be Lowered?
- Can I Get Bonded if I Have an Open Bankruptcy?
- Will Using a Strong Cosigner Help Lower My Rate?
- Will I Have to Post Collateral?
- Do Surety Bonds Require a Credit Check?
What is a Bad Credit Surety Bond?
The term bad credit surety bond does not actually refer to a specific type of bond. Rather, it is used to describe the conditions under which a different type of surety or bond is granted.
For example, a bad credit surety bond could primarily be a Motor Vehicle Dealer Bond, a Contract Bond, a Lottery Bond, or any other type of commercial bond. For more information on the different types of bond available, follow the surety bonds tab on our homepage.
What distinguishes a regular surety bond from a bad credit surety bond is that, in the latter case, the applicant is considered to have bad credit. Some bonding companies are less willing than others to provide surety bonds to those with bad credit, so using the term “Bad Credit Surety Bonds” helps to identify the surety companies which offer bad credit surety bond programs. In other words, it is simply a term to identify high risk surety bonds, and the companies which are willing to offer them.
What is Considered Bad Credit?
Within the surety industry, bond experts have determined that bad credit is identified by a low credit score. This typically means a FICO score of 649 or below. It is also worth noting that if you have a higher credit score, but adverse public records on your credit report, you may still be considered a “high risk” applicant and only be eligible for a bad credit surety bond.
How Does a Bad Credit Surety Bond Work?
Bad credit surety bonds work in much the same way as regular surety bonds. They act as a mechanism which provides a financial guarantee that the business owner or bond holder will fulfill certain obligations to their potential clients. These obligations are usually set by the state or local governing body to govern certain industries.
The business owner or bond holder will usually pay a premium, or portion of the full bond amount, to a bonding company. In return, the bonding company, or surety company, guarantees that funds are immediately accessible as damages for clients if the bond holder is found to be in breach of certain government regulations.
As surety companies are taking on risk when they grant a surety bond, it is in their interest to grant bonds to business owners who are the most reliable, and therefore least likely to need a payout. The business owner’s credit score is considered a useful metric of their reliability, so surety companies will usually charge a higher bond premium for applicants who have a lower credit score and are considered “higher risk”. That is why bad credit surety bonds usually cost more than regular surety bonds.
Other than this raised cost, a bad credit surety bond works in exactly the same way that other surety bonds do.
Who Should Get a Bad Credit Surety Bond?
Whilst they might sound daunting, bad credit surety bonds are appropriate for anyone who needs a surety bond but that has bad credit. There are plenty of good reasons you may have bad credit, such as difficulties caused by medical bills, credit cards, divorce or student loans. Anyone might need a bad credit surety bond, and these loans are not considered reflections of personal character.
How Do I Get Bonded with Bad Credit?
Firstly, you should start your bond application process. After your application has been approved, your agent will let you know the price of your bond premium and offer you a contract with a bonding company. Once you have paid your premium and signed your contract, you will receive your bad credit surety bond. For more information, see our page on the bonding process.
How Much Does a Bad Credit Surety Bond Cost?
Costs for bad credit surety bonds will depend on the type of bond, the industry in which you work, and the state in which you operate. You can learn more below.
What Will My Bond Cost if I Have Bad Credit?
When you purchase a surety bond, you pay an annual premium, which is a percentage of the bond amount. Typical premium rates for customers with poor credit can range from 5-15% of the bond amount. This means that a surety bond worth $50,000, for example, may cost between $2,500 and $7,500. This number can be much lower with good credit.
For more specific information on your bond cost, apply for a free bond quote today.
If I Have Bad Credit, How Can I Lower My Rate?
While our agency offers instant online quotes based solely on owner personal credit, it is possible to lower your surety bond rate by providing additional information. For example, if you have strong liquid assets and can provide cash verification, that could be used to strengthen your application. Strong business and personal financial statements can also be considered in determining your rate.
If My Credit Improves, Will My Renewal Rate be Lowered?
A high credit score can certainly help to lower your renewal rate. However, a better score does not guarantee a lower rate. In addition to FICO score, renewal premiums will also depend on collections and public records on your credit report, and updated surety underwriting guidelines for your specific bond type.
Can I Get Bonded if I Have an Open Bankruptcy?
Unfortunately, we cannot bond customers with open bankruptcies. However, once a bankruptcy has been discharged, we should be able to get you approved. The further in the past your bankruptcy was discharged, the better your chances will be at getting a lower rate.
Will Using a Strong Cosigner Help Lower My Rate?
We try to offer the lowest possible bond quotes without the need for cosigners. It can be very difficult to get a person who is not an owner of a company to be indemnified for that company's surety bond, as they can assume a large amount of risk if a claim arises.
However, if an individual with strong personal credit agrees to cosign on your bond, we can consider incorporating their personal information in the underwriting process. In certain cases, this can help to lower the premium amount.
Will I Have to Post Collateral?
No. With very rare exceptions, our bond approvals do not require collateral. With our exclusive bad credit programs, we are able to offer quotes with just an annual premium requirement.
Do Surety Bonds Require a Credit Check?
The cost of a surety bond premium is largely determined by your credit history. As such, bonding companies will ask you to submit a full credit report, outlining your credit history and score, before they will offer you a surety bond. The result of that credit check will determine whether you require a Bad Credit Surety Bond, or a regular surety bond.
If you feel ready to begin the application process for your bad credit surety bond, you can start online now.
If you still have questions, then you are always welcome to contact us on 877.515.4146, or leave us a message on our chatbot. Equally, feel free to check out our Lance Surety Blog for more information on how to obtain the right bond for you.
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