JW Surety Bonds

What is a surety bond?

Surety Bonds are different then your typical insurance in several ways.

A surety bond is a three-party agreement between the principal, obligee, and surety. The obligee requires the principal to obtain the bond, and the surety is the carrier backing the guarantee.

The principal may be the party paying for the bond, but the principal does not receive any funds in the event of a claim. The bond covers the clients of the principal; for instance an electrical contractor could have a claim on his/her bond, in which case the obligee (the client he/she is doing the work for) would recoup funds to pay another contractor to finish the job. The surety would look to the principal for payment of the claim and the associated attorney fees.

Surety bonds also differ from your typical insurance in that when an underwriter looks at an account they will write it assuming there is no claim/loss in the future. This is another reason why everyone is not qualified, they do not want to write risks which may have a claim. Insurance will write risks assuming there is a loss upcoming in the future and will adjust the premium accordingly.

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Surety Bond Blog Team

Bad Credit Surety Bonds

Many clients seeking licensing are turned down when they apply for their surety bond due to their credit. In some cases a company may have a surety bond placed with the same bonding company for years and then unexpectedly have their policy dropped.

The surety bond market has changed over the past couple years due to high claims and loss ratios; anyone who has applied for a surety bond with poor credit recently can vouch for that. Fortunately, there are still bonding companies that will write these high risk bonds.

The down-sides to bad credit bond programs (you knew there had to be one) are the higher premiums and cash collateral required. Acquiring a surety bond with bad credit can have premiums up to 20% with cash collateral of 10%.

What do you do if you have bad credit? Send your surety bonds applications to your bonding agency, they will try to place you in a standard market first and use the bad credit surety bond markets as a last resort. Be sure to try to fix your credit for following year renewal. Below are some tips on how to improve your credit score.

Improve your credit score for your surety bond renewal
1) Pay off your credit cards in full
2) Pay all bills on time to avoid collections
3) Own 2-3 credit cards that are used regularly and paid on time
4) Check your credit report for any incorrect information
5) Read online literature on the subject as this article is only a basis on how to start