Every surety bond goes through an approval process called underwriting. Underwriting determines if the bond is a good risk for the surety carrier. The risk for the surety is likelihood there will be a claim and if that happens will the bond principal be able to indemnify them (pay them back). To assess this risk, the underwriter tries to determine whether or not the principal has a history of doing what they say they will do by reviewing a variety of information.
One of the underwriting data points is always the principal’s credit scores, which is looked up with a social security number. Credit scores are financial assessments of whether or not someone does what they are supposed to. If someone lends you money or extend your credit then you are supposed to pay them back. Doing so gives you a higher credit score. Not doing so or paying late will lower your score. In cases where the bond principal is a business, underwriters look at the credit scores of the business owner(s).
Good underwriters use credit scores along with other underwriting information, such as financial statements, to determine risk for the surety and approve a bond. They try to put together a comprehensive picture, of which credit score is a part. How important credit scores are in the overall underwriting process depends on the bond type and single or aggregate bond amount. For example, California mortgage brokers are required to post a $25,000 license bond. These are considered relatively low risk bonds and are approved based just off credit score. For nationwide money transmitters needing millions in total bonding, underwriters consider their financial statements more than credit scores, although credit scores can still be a part.
For some surety carriers and bond types, credit scores are a go, no go for approval. While it varies by surety, most want to see a score of 600-700 or higher. However, a bond may still be approved even for lower credit scores. The difference is what premium rate they may charge for the bond. In general, the lower the risk the lower the premium. For credit scores meeting their minimums, the surety will charge standard premiums. For lower scores, the bond can still be approved through a non-standard program, which simply means the premium is higher to account for increased risk. If the scores are really low, the surety may even still approve the bond with a higher premium plus collateral.
When many people are checking your credit that can affect your credit score. However, when a surety bond underwriter checks your credit it should be done as a soft pull, which means it should not affect the score. Surety bond underwriters use a different credit check than a bank or car dealership that is designed not to affect your score.
Surety underwriters are not allowed to discuss your credit report with you. If there is an issue affecting the approval of your bond then they should notify you of that and provide the credit bureau contact information for you to review the data with the credit company. Likewise, your social security number or credit information is not shared with anyone not specifically involved in the underwriting process of your bonds, which should only include the surety bond broker and the surety carrier.
If you have any questions or concerns with sharing any underwriting information please always feel free to call or email us at Alpha Surety.