Contractor License Bonds – Overcoming Bad Credit
The prolonged downturn in the California construction industry is increasingly straining the finances of many contractors and now, more than ever, many contractors must overcome bad credit in securing affordable license bonding. If you are a contractor in this particular predicament, what are your options?
Step 1: Find The Source Of The Credit Problem (If You Don’t Know The Source)
If your license bond renewal is a few months down the road, you may want to request a copy of your credit report before shopping your rate through multiple brokers. Your credit report may reveal an easy fix that is bringing your score down, such as a credit card that’s reflecting a higher balance than actually exists, a lien that’s been settled etc. If this scenario applies to you, then these items can usually be corrected in advance of your renewal date, which could increase your credit score and hopefully place you in a more favorable bond rate classification. Avoid getting multiple quotes right off the bat from several brokers because depending on the broker and where they are obtaining quotes from, they may be using a hard credit pull which could negatively affect your credit score if you incur multiple inquiries in a short time frame. (For those curious, our online bond quote platform performs a soft credit pull, not a hard pull, so you should be in the clear.)
Step 2: Plan Your Bonding Strategy
After completing step 1, you should have a good idea of where you stand in terms of credit score, tax liens, bankruptcies, prior bond claims, etc – basically the things that can impact your bond rate. Next we suggest contacting a few reputable brokers and explaining your relative circumstances to see if any negatives in your profile will be deal breakers with certain carriers. This can save a lot of time and effort because most brokers work primarily with a few sureties that specialize in bonds for a wide range of contractor profiles, but not all. Calling broker after broker for quotes could affect your credit score as explained earlier, while leading to little headway if the same surety’s are being quoted over and over again.
Step 3: Evaluate Your License Bonding Options
Depending on where you fall on the spectrum in terms of “Bad Credit” and other rating variables, you should have a clear picture of what you may be looking at in terms of license bonding costs. If your bond rate is very high, ask your broker if you qualify for a co-signer. Some carriers will offer a co-signer rate that can be as much as a thousand dollars per year less than their non co-signer rate, presuming your co-signer has decent credit. If you do go this route, make sure your co-signer fully understands what they are getting into. If there is a claim on your bond down the road, they are on the hook as much as you in terms of repaying your surety.
By Jeremy Schaedler