Credit Repair Bond
Before talking about the bond itself, it will be necessary to define just what a credit services organization is. This type of company charges a fee for services it renders to individuals in need of credit repair, and sometimes also in need of more credit than they already have. Many of the states in this country require that such organizations obtain a credit service organization bond in order to conduct business within state borders.
Surety Bond for Credit Repair Business
How they work
As is the case with all surety bonds, a credit repair bond is an agreement between three parties, the principal (the credit service organization), an obligee (the state which requires the bond), and a surety company, which issues the bond. The terms of the bond are written such that they provide a guarantee that the principal will conduct its business according to all state laws and regulations which are in effect at the time, and is intended to protect clients of the organization from financial loss in the event that the credit service organization is guilty of some kind of professional misconduct.
When the credit service organization fails to live up to the terms specified in the bond agreement, or if it clearly acts in a fraudulent manner, a client of the company is entitled to make a claim against the bond which was posted by the company. If the claim is found to be valid, the surety company would have to pay the full amount of the claim made against the bond, after which it would retrieve that same sum from the credit service company (the principal). The purpose of this kind of arrangement is to ensure that any involved funds are handled in an ethical manner and that consumers are protected against fraudulent credit service organizations.
Why bonding is important
Bonding is important for all of the involved parties. Consumers are protected against organizations that behave in a criminal manner, or which fail to act according to state mandates. The credit service organizations benefit by being bonded because it allows consumers to have confidence in them, and serves as a guarantee of good behavior. The state benefits because it is licensing reputable businesses that abide by regulations, and which provide useful services to citizens of the state. Lastly, the surety company benefits because it earns a profit, however small, on the sale of each surety bond.
If your organization is not properly bonded, and you are doing business in a state which considers them to be mandatory, you could face a severe penalty for illegally conducting business, and you would probably be denied an operating license for some period of time. Organizations that operate in states where bonding is not required would still be well advised to get a surety bond for credit repair business, so that consumers can have more confidence in your organization, and because it might also stand out from the crowd in such circumstances.
Cost of a credit repair bond
Generally speaking, the cost of a credit repair bond will depend on the company’s credit score and credit history. This makes sense, because any company which represents a higher risk to the surety company issuing the bond, should logically expect to pay more to obtain the bond. Companies with a good credit score and with a good business credit history can probably expect to pay between 1% and 4% of the face value of the bond, so, for instance, a bond in the amount of $100,000 would cost just $1,000 or thereabouts to a credit service organization with good credit.
Companies that have less than perfect credit history might have to pay anywhere from 4% to 15% of the face value of a bond amount. The same $100,000 bond if purchased by an organization with a very poor credit history might have to pay as much as $15,000 to obtain the bond. The good news is that poor credit history does not necessarily disqualify an organization from obtaining the needed bond, it’s just likely to cost significantly more than it would for other companies with good credit.
How to obtain a bond
It’s fairly easy to obtain a surety bond for credit repair business, and for your first step, you should apply online at the site for a surety company that is authorized to sell these bonds in your state. NFP Surety is one of the nation’s largest sellers of surety bonds and is also one of the country’s most reputable vendors. When you apply, you’ll be required to supply the credit scores of your organization’s owners, the legal name of your company, and the bond amount which is standard for your state (although this will be confirmed by an NFP agent).
When your application has been reviewed and approved, you will be issued an indemnity agreement, and this must be signed and returned to the surety company. Once the surety receives this document back, the bond can be issued and your organization is legally covered as of that moment.