If you have bad credit and need a surety bond, you may be worried that you will not be able to get one. The good news is that bad credit does not automatically disqualify you from obtaining a surety bond. While your credit score is an important factor in the underwriting process and will affect the premium you pay, there are surety companies that specialize in working with applicants who have credit challenges, including bankruptcies, tax liens, collections, and low credit scores.
For most license and permit bonds, your personal credit score is the primary factor that determines your premium rate. Applicants with excellent credit (scores above 700) typically receive rates in the range of 1% to 3% of the bond amount. As credit scores decrease, premium rates increase. Applicants with scores in the 500s and 600s may see rates of 5% to 15% of the bond amount. While these higher rates mean you will pay more for your bond, they still represent a manageable cost for most businesses. A $10,000 bond at a 10% rate, for example, would cost $1,000 per year.
Not all surety companies underwrite applicants with poor credit, but many do. These carriers specialize in what the industry calls "non-standard" or "high-risk" accounts. They understand that credit issues do not necessarily mean a business owner is irresponsible or likely to cause a claim. Life events such as medical emergencies, divorce, economic downturns, or business setbacks can affect anyone's credit. By working with an agency like SuretyBondly that has relationships with multiple surety carriers, you can access these non-standard programs and get quoted by the companies most likely to offer you a competitive rate.
Some surety bonds do not require a credit check at all. Certain low-risk, small-amount bonds are issued on a "no credit check" basis because the bond amount is small enough that the surety is willing to issue the bond based on basic application information alone. Notary bonds, for example, are commonly issued without a credit inquiry. Some small license bonds in the $5,000 to $10,000 range may also be available without a credit check, depending on the state and bond type. If you are concerned about your credit, ask your agent whether a no-credit-check option is available for your specific bond.
There are several steps you can take to improve your chances of getting approved and obtaining a better rate. First, be upfront and honest on your application. Surety companies will pull your credit, so there is nothing to gain by hiding issues. Second, if you have a bankruptcy, make sure it has been discharged and provide documentation. Third, if you have outstanding tax liens or judgments, work toward resolving them, as active liens are a significant concern for surety underwriters. Fourth, consider working with an agency that shops your bond across multiple carriers, since different surety companies weigh credit factors differently and may reach different conclusions about your application.
Even if you start with a higher premium due to credit challenges, your rate is not permanent. Most surety bonds renew annually, and your premium can decrease at renewal if your credit has improved. By making consistent payments on debts, reducing balances, and avoiding new negative marks on your credit report, you can gradually qualify for lower rates. Some applicants see meaningful premium reductions within just one to two years of focused credit improvement. Getting bonded now, even at a higher rate, allows you to operate your business legally while you work on improving your financial profile.