| Getting Started with Surety Bonding

What You Need to Know

MBDI staff prides itself on taking the confusion out of the surety bond application process. We stand ready to help you decipher the myriad of questions and forms to keep you moving toward the goal of established bonding capacity.

While we will guide you through the process, there are several important items that must be considered before getting started. Your answers to many of the following items will determine the most sensible course of action.

  • Determine your bond size requirement.
    Do you need a small bond of less than $450,000 or do you require a bond amount in excess of $500,000?

  • Determine what your bond requirements will be over the next 12-month period.
    Will you be pursuing one contract or are you pursuing several bonded contracts?

  • Confirm your current credit score. If you do not know your credit score, now is the time to find out! This score is an important factor in your bonding application process. Visit www.myfico.com for free, instant on-line access to your credit score. This site is also a great reference and resource for credit-related questions.

  • Reflect upon the current financial strength of your firm.
    Review your firm’s balance sheet and financial document history to determine the company’s current financial position.

Completing the above action steps will help you determine if a bond amount of less than $450,000 will be adequate. If so, click Small Contractors Program for more information.

If your needs are for a bond program of $500,000 or more, click Standard Surety Program for next steps in the process. This will include a comprehensive list of required documents for submission.

The SBA Bond Guarantee Program may be appropriate for companies that do not qualify for bond in a standard surety market.

How your Credit Score (FICO) Impacts your Ability to Secure a Bond

The credit score of a firm’s principal(s) is a key factor in the bonding submission and approval process as it is considered to represent the creditworthiness of an individual and his/her likeliness to pay off debt. A high credit score is considered to reflect stability and good financial management whereas a low credit score may indicate financial issues and often raise “red flags” for the surety company.

On a scale of 300 to 850 (850 being the highest possible score), surety companies usually seek a credit score of 650 or higher as a good indicator of bondability. However, a surety will give consideration to an application or request for bonding and may approve bonding with a credit score of less than 650 if it does not include tax liens, bankruptcies, delinquent child support payments and/or other serious judgments.

How a FICO Score is Developed

By utilizing a mathematical formula, credit scores are developed based upon many elements of credit data available in a credit report. According to www.myfico.com, these factors are generally grouped into 5 major categories:

Payment History

  • Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
  • Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
  • Severity of delinquency (how long past due)
  • Amount past due on delinquent accounts or collection items
  • Time since (recentness of) past due items (delinquency), adverse public records (if any), or collection items (if any)
  • Number of past due items on file
  • Number of accounts paid as agreed

Amounts Owed

  • Amount owing on accounts
  • Amount owing on specific types of accounts
  • Lack of a specific type of balance, in some cases
  • Number of accounts with balances
  • Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
  • Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

  • Time since accounts opened
  • Time since accounts opened, by specific type of account
  • Time since account activity

New Credit

  • Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
  • Number of recent credit inquiries
  • Time since recent account opening(s), by type of account
  • Time since credit inquiry(s)
  • Re-establishment of positive credit history following past payment problems

Types of Credit Used

  • Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

It is very important to note that the FICO score is just one of many criteria that a surety company will consider when reviewing a bond submission application.