What is a Credit Service Organization Bond?
Credit service organization bonds are a requirement in many states for businesses operating in the credit service industry. A credit service organization is an entity that, in exchange for a fee, offers to help consumers secure an extension of credit, improve their credit standing or credit score, or prevent foreclosure or bankruptcy. A credit service organization bond acts as a form of protection against bad business practices, such as fraud or misrepresentation of services.
A credit service organization bond is a three-party contract between the principal (the business obtaining the bond), the obligee (the state or federal agency requiring the bond), and the surety (the one offering the bond). Should a credit service organization fail to operate in line with state or federal laws, a claim can be made against the bond to help cover any losses incurred.
What Does a Credit Service Organization Bond Cost?
Before a credit service organization is licensed to do business, a surety bond must be in place as required by the state. Getting a bond requires paying a premium, calculated as a percentage of the total bond amount. For example, a $100,000 credit service organization bond may cost between 1 and 3% of the bond amount, or $1,000 to $3,000.
However, credit service organization bond premiums may extend up to 4 to 15%, depending on several factors. Your surety agency will take a close look at your personal and business financial background, including assets and liabilities, business financial documents, and credit score. If you do not have a strong financial track record, you are likely to pay a higher percentage rate for your credit service organization bond.
Is a Credit Service Organization Bond Valid in All States?
If you’re operating a credit service organization across multiple locations in different states, each state where you do business is likely to have its own licensing and bonding requirements. Be sure to check with your surety agency to see which credit service organization bond you need for each state to stay compliant with licensing regulations.
