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. 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.
How Do Credit Service Organization Bonds Protect Consumers?
A credit service organization bond is a three-party contract. This agreement protects consumers by giving them financial protection in case something goes wrong.
The obligee is the state or federal agency requiring the bond so that the credit service business abides by the law.
The principal is the business in the credit service industry that’s required to obtain the bond.
The surety offers the bond to the business and pays any claims by customers. The business must then pay back the claims over time to the surety.
What Qualifies as a Credit Service Organization (CSO)?
A CSO is a company that helps a consumer evaluate their creditworthiness and obtain loans from third-party lenders. They work as the middle-man between a lender and a consumer to help extend lines of credit to the consumer. CSOs are not lenders and do not give out loans. They may offer advice on how to improve a client’s credit score, and they may also monitor clients’ credit reports or dispute inaccurate information on a credit report.
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.
How Do You Apply for a Credit Service Organization Bond?
To apply for a credit service organization bond, you can submit a brief online application. The surety company will need information about the bond type and amount required, as well as financial details for the credit service organization.
Once these details are reviewed, a quote is provided for the bond and then your personal credit history and company financials are reviewed to determine the cost of your bond premium.
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, which is calculated as a percentage of the total bond amount.
For example, a $100,000 credit service organization bond may cost between one and three percent of the bond amount, or $1,000 to $3,000. However, credit service organization bond premiums may extend up to four to 15 percent, 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.