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Bad Credit Surety Bond

bad credit surety bond program

In today's economy, many people find themselves in tough financial situations and consequently see their credit scores plummet. According to the credit provider Experian, the average credit score is 703, which is not bad, but it means a lot of people have scores much lower than that. Some have fallen on hard times because of foreclosure, high credit card balances, medical bills, divorce, student loans, and other factors. Regardless of the reason, credit affects your ability to qualify for a surety bond. Read below to learn more about the relationship between your credit and surety bonds.

What is a Bad Credit Surety Bond?

There is not a strict definition of bad credit. Every surety bond company is free to set their own standards for who has "bad credit" and is considered a "high risk." Typically, however, underwriters consider anyone with a credit score below 670 to be a riskier borrower. Other factors like having a bankruptcy or a history of late/delinquent payments could also brand someone as needing a bad credit surety bond. It's important to emphasize that this isn't a specific type of surety bond. Rather, it's a term that refers to a surety bond needed by someone with what's generally considered "bad credit".

How does a Bad Credit Surety Bond work?

Surety bond companies evaluate your credit before offering you a bond because they want to determine how likely you are to meet your financial obligations under the bad credit surety bond. As the bonded party, you must pay for any valid claims filed against your bond. If you don't, the surety company will pay, but they will try to collect that same amount from you. Your credit is one indicator of your trustworthiness and accountability, as measured by your history of paying back debt obligations. Having bad credit doesn't mean you are a bad person or guaranteed to default on your obligations. But it does mean the surety company is taking a higher risk. That will be reflected in your premium price. Otherwise, a bad credit surety bond operates the exact same way as any other type of surety bond. Said differently, the fact that someone with bad credit needs a bond only affects the application process. Once that person is approved for a bond the agreement unfolds as normal.

What is the purpose of a Bad Credit Surety Bond Program?

The programs are designed to give bond applicants at risk of being turned down for a bond because of credit a better chance of getting approved. Every program is a little different, but they all have the same goal: to help people who need a bond to pursue a professional license, a commercial contract, or any other important endeavor, get the bond they need. Viking Bond Service offers a bad credit surety bond program that has helped countless bond applicants overcome the obstacle of bad credit, even when they have been denied a bond in the past. Can I get a surety bond with bad credit? The answer is often yes.

Who should get a Bad Credit Surety Bond?

The simple answer is anyone who has bad credit and needs a bond, which could include a lot of people. Below are a few examples of bonds that people commonly need but commonly get turned down for because of bad credit. That's why it pays to partner with a surety bond agency that offers a bad credit surety bond program from the start.

Performance bonds guarantee that the bonded party will meet certain performance benchmarks (like completing a building project before a certain date) or else pay a penalty to the obligee. Bad credit does not keep someone from getting a performance bond.

Commercial bonds hold contractors and business owners accountable if they break local laws or professional norms. Underwriters will want to evaluate your credit along with any business partners, but bad credit and surety bonds are not mutually exclusive.

Who are the parties involved in a Bad Credit Surety Bond?

In all instances there are three parties involved:

  • Principal - The person with bad credit who obtains the bond and accepts financial responsibility for claims filed against the bond
  • Obligee - The party with the right to file claims against the bond seeking financial compensation for damages caused by the principal.
  • Surety - The company that issues the bond and steps up to cover claims when the principal can't. If the surety pays, however, the principal must pay that same amount back with interest and fees included.

How much does a Bad Credit Surety Bond cost?

The cost of obtaining a surety bond with bad credit is generally higher by nature. Surety companies, like other insurance companies with other lines of coverage, generally charge by their calculated risk, so the higher the risk, the higher the premium you pay to induce the surety to take the risk. In most cases, bad credit surety bonds cost a small percentage of the bond's total value. That means if you have a $20,000 commercial bond and your premium is 5% of that total, you pay only $1,000 for a bond that usually lasts for 12 months. Keep in mind that the total value of bonds varies widely depending on the type of bond and the state it's issued in. The percentage you pay also varies based on your risk, meaning applicants with bad credit will pay a larger percentage.

The good news is that after the first year's premium is paid, principals have the opportunity to begin repairing their credit. If credit can be repaired, or at least improved adequately by renewal time, the cost of renewal for the bond can be reduced from what was paid for the initial term under worse credit conditions. When you renew, you will submit financial information, much like you did when you first applied for the bond. Underwriters will evaluate that information, determine your creditworthiness, and quote you a new premium price. Depending on how much your credit has improved, you could save significantly over the year before. And if this trend continues, your bad credit surety becomes just a normal surety bond.

At Viking Bond Service, we take a fresh look at each bond file every year prior to renewal. Our in-house renewal department reviews our client's current credit standing to see if the current bond can be remarketed to standard sureties with much lower premiums. In some cases, we are able to work with our markets to get premiums lowered simply because of the relationships developed between the principal, the agent (Viking Bond Service), and the surety. We may, for example, show the surety that Client A has been with us for X many years without any claims history, and we feel that the client does not present a bad risk and is thereby deserving of a lower rate.

How are claims handled for Bad Credit Surety Bond?

The surety will investigate all claims thoroughly using whatever resources necessary - lawyers, investigators etc. Provided that the details of the claim prove true, the surety pays the obligee the amount of the claim up to the total value of the bond. Finally, the surety uses whatever means available to collect the cost of the claim from the principal. That cost may also include the cost of the investigation, interest, and possibly additional fees.

How to apply for a Bad Credit Surety Bond?

Am I bondable with bad credit? The answer is yes, but you need the right partner. Your best option is to work with a company that offers a bad credit surety bond program. Viking Bond Service is one of those companies, and we are committed to working with anyone who needs a bond regardless of their credit history. As a higher risk, your premium will cost more, but in most cases you will not be denied for the bond you need. Simply fill out our online application as normal. Our underwriters will factor in your credit score when calculating your premium price, but we will also do everything possible to keep costs to a minimum. Don't assume that bad credit excludes you from surety bonds. You simply need to work with the right company.

Viking Bond Service's Bad Credit Surety Bond Program

At Viking Bond Service, we are dedicated to providing efficient and friendly service to streamline processes and ensure your satisfaction with a team of surety bond experts that have over a century of combined industry experience. We provide bonding using A-rated, Treasury-listed paper. With our proprietary tracking and processing system and a knowledgeable tech team, we can provide a quick turnaround and great service for our customers, ensuring that we can help you apply for a surety bond with bad credit.

If you or any of your insured clients are in need of a surety bond and credit is an issue, feel free to contact us for more information about high risk surety bonds by calling (888) 278-7389 or filling out our contact form. Not all bond types and amounts qualify, but most standard license and permit bonds $50,000 and under can be written through this bad credit surety bond program. If you would like a free quote for a surety bond, please call us or fill out our online application today.

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