credit score

Secrets of Bonding #90: Manage Your Credit Report

Love it or hate it, you do have a credit report and potential creditors can view it.

Credit scores have always been important in the evaluation of contractors applying for bid and performance bonds. Today they are even more important because a number of bonding programs we offer use the personal credit score as a primary basis for the bond approval.

Let’s dig into this critical underwriting element, learn about the inner workings and how to manage them.

Here are the main components used in evaluating the credit status (listed in order of importance):Credit cards

  1. Payment history
  2. Amounts owed
  3. Types of credit in use
  4. Length of credit history

Dig Deeper

Each credit bureau has reporting relationships with vendors and lenders. They gather payment info from them each month. It is likely that every credit bureau receives information from the issuers of your major retail credit cards (such as department stores and gas cards.) They may not, however, know all of your creditors. Therefore it is possible that credit bureaus may show different data and credit scores.

Regarding amounts owed, the dollar amount may not necessarily lower your score. It is more detrimental if you are using a high percentage of your available credit. This is viewed as a possible indication of financial stress.

The type of credit you use is not a major factor in determining your score. However, you should refrain from opening new credit cards unnecessarily. It may also lower your score if you do not have any credit cards. Managing credit card debt responsibly helps raise your score.

Applications for new credit can lower your score, especially if you do not have a long credit history. It does not lower your score if you order your own report directly from the credit bureau.

Manage Your Credit Report

Step one is to order a free copy of your credit report and check it for erroneous information. Mistyped social security numbers and name spelling errors can result in other people’s bad information appearing in your report. This happens more often than you might think.

If you do find inaccuracies, write to the credit bureau, provide an explanation and evidence (such as proof that a disputed account was settled) and demand a correction.

Other tips:

  • Set up payment reminders
  • Reduce the amount of debt you owe
  • Pay your bills on time
  • Talk to creditors if you are having difficulty making payments

Conclusion

Your credit score matters for bonding and other purposes. It is worth taking the time to manage, and maximize it.

Disclaimer: We are not credit counselors and are not providing financial advice! We are Surety Bond Specialists.  If you need a credit counselor, contact one.  If you need a bond, call us!

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

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: https://iupdate.dnb.com

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.

Summary

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.


A special note from the author: Steve Golia

I am an Independent Broker and Surety Bond Specialist. If you wish to co-broker bond business, together we will deliver the best in bonding expertise for your clients.  I have a broad range of markets available and often can solve problems even when others have failed.

Call me now (856-304-7348) or email: Steven.Golia@gmail.com