The first thing any underwriter checks when a new application for a bid bond crosses their desk is the credit of the owners and their spouses. If you have poor credit it makes it very difficult to become bonded.
As a result of the poor economy during the last few years, many smaller contractors’ credit has suffered. In many instances this is through no fault of the contractor themselves. Prime contractors and developers often went bankrupt and left small contractors holding the bag. Contractors who were able to hold on during these lean times are usually not in the greatest financial shape. Now with the improving economy they find themselves in the position to be able to get back on their feet, only to be knocked back down again as they are unable to secure bonding because of a low credit score.
What credit score are they looking for to get a bond?
Generally the minimum credit score is around 700. The so-called “credit score range” for the standard FICO score is 300 to 850. If you do not know your credit score you should obtain a free copy by using sources like CreditKarma.com or similar sites. A quick way to figure out if your credit score is over 700 is if you have unsecured Visa, Mastercard or American Express credit cards. If you have these cards, are current on the payments, and do not have any other recently past due bills, you typically have a credit score of at least 700.
What Can I do if my credit score is below 700?
The first thing you must realize is that obtaining bid bonds regularly with minimum hassle is the goal you should have to grow your business. At UnitedSuretyBonds.com we want to establish a long term mutually beneficial relationship with your business. This growth may take time and effort. In situations where the personal credit is not so good, a credit report should be obtained. This report should be reviewed carefully for any errors. Errors can be disputed on-line with all the major credit bureaus. Another easy way to raise your credit score is by reducing your credit balances. Be careful not to close any accounts because this actually may have a negative effect on your credit.
Can I post collateral?
Yes. Surety companies will take collateral in most instances. This option is generally not feasible for most small contractors. The reason for this is that surety companies will require either cash or an irrevocable letter of credit to secure any bonds issued. This amount can vary from 20% to 40% of the contract price. It has been our experience that contractors with low credit scores do not have access to this amount of cash.
I have a lot of real estate will the surety company take that as collateral?
In most cases no. There is a way that you can possibly use the equity you currently have in your real estate to obtain a line of credit from a bank and this in turn can be used to secure the bid bond you need.
If you have any questions regarding bid bonds, payment bonds, performance bonds or bonds in general feel free to contact us by clicking here or by calling (312) 878-2372 to talk to someone immediately.