How to Get a Surety Bond with Bad Credit

Table of Contents

What is a personal credit score?

Credit scores and surety bond cost

How to get a surety bond with bad credit

Non-credit check bonds

What is a personal credit score?

A personal credit score is a numerical representation of an individual's creditworthiness and credit history. It is used by lenders, such as banks, credit card companies, and other financial institutions, to assess the risk of lending money or extending credit to an individual. The credit score is calculated based on various factors from the individual's credit report, which is a record of their borrowing and repayment activities.

Credit scores typically range from around 300 to 850, with higher scores indicating better creditworthiness and a lower risk for lenders. A higher credit score can lead to better interest rates, more favorable loan terms, and increased access to credit. Conversely, a lower credit score can result in higher interest rates, limited credit options, or even denials for credit applications.

Approximately 16% of Americans have poor credit, with scores between 300 and 579. Others have little or no credit at all. One’s ability to obtain a surety bond is often dependent on personal credit scores, so having bad or no credit at all makes it difficult for some to acquire necessary surety bonds. 

Credit scores and surety bond cost

Credit scores affect how much your surety bond costs. The relationship between a person's credit score and the cost of a surety bond can be significant. Surety bonds are a form of financial guarantee that ensures that a party will fulfill its obligations. They are commonly required for various business activities, licenses, permits, and contracts. Because credit score shows surety bond companies the reliability of a customer, the lower the credit score the less the company will trust the applicant. This increases the price of the surety bond. 

Here's how credit scores can affect the cost of a surety bond:

Credit-Based Pricing: Many surety bond providers use credit scores as one of the factors to determine the cost of a bond. Generally, applicants with higher credit scores are seen as lower risk, and therefore they may qualify for lower bond premiums (the cost of the bond). On the other hand, applicants with lower credit scores might be considered higher risk and could be charged higher premiums to compensate for the perceived increased risk.

Bond Approval: In some cases, individuals or businesses with lower credit scores might face challenges in getting approved for certain types of surety bonds. Some surety bond providers might decline to issue a bond to applicants with poor credit, while others might offer the bond at a higher premium due to the perceived risk.

Bond Limits: For larger bond amounts, credit scores can play a more substantial role in determining both the availability and cost of the bond. Higher credit scores might allow businesses to secure larger bonds at more favorable rates.

Credit Score Thresholds: Some surety bond providers might have specific credit score thresholds that determine the premium rate or whether the applicant can obtain a bond at all. For example, above a certain credit score, an applicant might qualify for the best rates, while below a certain threshold, they might not be eligible for the bond.

Type of Bond: The type of surety bond required can also impact how much credit scores affect the cost. Certain bonds might be more forgiving of lower credit scores than others, depending on the perceived risk associated with the specific bond.

It's important to note that while credit scores are a significant factor, they are not the only consideration in determining surety bond costs. Other factors, such as the type of bond, the amount of coverage, and the applicant's industry experience, will also play a role.

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How to get a surety bond with bad credit

Applying for a surety bond with bad credit is no different from applying for a surety bond with high credit scores. To obtain a surety bond, follow the steps below:

Step 1: Choose what surety bond you need

A surety bond is often required in various situations to provide a financial guarantee or assurance that a party will fulfill its obligations as outlined in a contract or under certain legal or regulatory requirements. Common scenarios where surety bonds are needed include but are not limited to the following: business licenses, construction projects, and court proceedings.

Step 2: Figure out the coverage amount of the bond

The next step is to figure out your surety bond amount. For some licenses and projects, a certain bond amount is required. For scenarios where there is no required bond amount, you can use the following guidelines to determine the best bond amount for you:

  • How much the project costs
  • Additional costs (i.e. bond costs, etc.)
  • Your financial capacity to cover claims

Once you have chosen your coverage amount, you can start to find surety companies to purchase your bond from.

Step 3: Choose your surety or insurance company

Surety bonds can typically be obtained from a variety of sources, depending on the purpose of the bond and your specific needs. Typically, you can purchase surety bonds from a specialized surety agency or insurance company:

Surety bond companies specialize in providing various types of surety bonds for different industries and purposes. They work directly with individuals, businesses, and contractors to issue bonds that meet specific requirements. For example, SuretyNow is a specialized surety agency because we only sell surety bonds. 

Many insurance agencies offer surety bonds as part of their services. If you have an existing relationship with an insurance agency, you can inquire about their bond offerings. 

When seeking a surety bond, it's important to do your research, compare quotes, and choose a reputable and established provider. The specific options available to you may vary based on your location, the type of bond needed, and the purpose of the bond. 

For more information, read our “Where to get a Surety Bond” article.

Step 4: Apply for a quote from your chosen surety broker

To apply for a quote, you will usually need to fill out an application. The application will ask for your social security number, financial history, years of experience, company assets, and personal credit score. 

SuretyNow provides a hassle-free option to acquire your surety bond. Start by completing our brief 3-minute form, and we'll promptly respond to you within an hour. Your bond will be conveniently delivered to you via email or mail. 

Step 5: Purchase your surety bond

After you obtain your quote, you will be able to purchase your bond, and this is where your personal credit score comes in. While the process of obtaining the bond is the same, the cost of the bond may be higher with a poor credit score. Usually, those with bad credit scores will need to pay between 5% and 15% of the bond amount. For example, if you obtained a $10,000 bond amount, the bond cost is between $500 and $1500. 

Your bond information will be sent to you via email or mail. With this bond information, you will be able to use it in applying for business licenses or sent to customers. 

Non-credit check bonds

Surety bonds that don't require credit checks are often referred to as "non-credit check" or "no-credit-check" bonds. These bonds are designed to provide a bonding option for individuals or businesses with lower credit scores or credit issues. Here are a few examples of surety bonds that may not typically require credit checks:

  • Notary Bonds: Many states offer notary public bonds that do not require a credit check. These bonds are often required as part of the notary commission process.
  • Vehicle Title Bonds: Some states allow individuals with missing or incomplete vehicle titles to obtain a bond in lieu of the title. These bonds help ensure that the individual has a legal right to the vehicle.
  • Lost Instrument Bonds: These bonds can be used when a financial or legal document is lost, stolen, or destroyed. They provide a guarantee that the original document will not be misused.
  • ERISA Bonds: Employee Retirement Income Security Act (ERISA) bonds are required for individuals who handle funds or assets of employee benefit plans. Certain smaller plans may not require a credit check for these bonds.
  • License and Permit Bonds: Depending on the jurisdiction and the type of license or permit needed, some authorities may offer non-credit-check options for businesses.
  • Janitorial Bonds: These bonds are sometimes required for cleaning businesses and may be available without credit checks.
  • Small Contractor Bonds: Some states or municipalities offer bonds for small contractors or tradespeople without stringent credit requirements.

Keep in mind that the availability of such bonds and the specific types offered can vary depending on the surety bond provider and the industry. 

Obtaining surety bonds with bad credit scores is possible. The process is very similar compared to those with good credit scores, with the differences mostly being the bond cost.