Secrets of Bonding #44: The One Good Thing About Bad Credit

When it comes to Bid and Performance Bonds for contractors, low scoring business and personal credit reports are one of the most common reasons for bond declinations.  After a series of rejections, the client may be discouraged. But there is one good thing about low credit scores:

Compared to other problems, this may be one of the easiest to correct.

Step one in solving a credit score problem is knowing you have one. Credit bureaus are legally required to furnish the report free of charge if requested by the subject. The bond applicant should obtain their own credit report and seek help to interpret the data if necessary.  D&B reports can be accessed by visiting:

Understanding Why the Credit Score Is Low

How are credit scores determined?  The key factors:

  • Payment history, timeliness of payments – slow payments, collection accounts and write-offs lower the score
  • Total amount owed – excessive use of credit produces bad ratios
  • Length of credit history – short history has little credibility
  • New credit sought – multiple credit applications may indicate a cash flow problem
  • Types of credit used – may indicate a distressed applicant
  • Suits, liens and judgments

Dealing With the Problem  1) Verify Content

  • Obtain the credit report and review it for accuracy.  I’m not the only Steve Golia in the world.  It is more common than you think for reports to contain unrelated info and errors. There could also be good credit data that is missing. Send corrections to the credit bureaus in writing.
  • The payment history includes trade reporting by vendors. Companies can furnish the names of their most frequent vendors to include them in the report.  Companies may also voluntarily supply financial information, and other elements that may strengthen the report.  Discuss this with the credit bureau.
  • Suits, liens and judgments: Even if resolved / settled these may still appear open on the report.  Send the reporting agency proof of resolution.
  • After all this, follow up by ordering a subsequent report to confirm the corrections / adjustments have been made.

Dealing With the Problem  2) Long Term Credit Management

  • Be conservative when opening new credit relationships.  “Open a credit account with us today and save 10% on this purchase!”  Just the act of applying for credit can be viewed as an indication of financial problems and can lower the score.
  • Don’t assume closing existing credit accounts will improve the report, and it will not remove those designated as “collection” accounts.
  • Set up reminders for payment and pay on time.
  • Reduce total debt.
  • Pay off debt instead of moving it around.


Surety underwriters decline bond accounts for many reasons: Poor financial results, a lack of related experience or bad credit are some examples.

The One Good Thing – Contractors are not able to change history, but an erroneous credit report is easy to correct if the problem is detected and acted upon.

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FIA Surety / First Indemnity of America Insurance Company
2740 Rt. 10 West, Suite 205
Morris Plains, NJ 07950
Office: 973-541-3417

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