Companies that offer credit repair services to consumers are categorized as credit services organizations, or CSOs. Consequently, “credit repair surety bonds” also go by the name “credit services bonds or CSO bonds.” They provide protection for the state and for consumers that could suffer financial loss as a result of any unlawful or unethical conduct on the part of the credit repair company.
These bonds are a type of license and permit bond, because they are required in order to operate a credit services organization legally in a particular state. In essence, the bond is the company’s guarantee to abide by all applicable state laws.
Who Needs It?
Credit services organizations are regulated at the state level throughout the United States. Consumers turn to these companies to help secure credit for them, improve their credit scores, or negotiate on their behalf to prevent foreclosure. Purchasing a credit repair bond is part of the process of obtaining a state license to do business.
Do not confuse credit services organizations with debt management service providers, which purchase debt. They are two very different organizations and require two different types of bonds.
How Does It Work?
Every surety bond brings together three parties in a legally binding agreement. The obligee is the party that requires the principal (the credit services organization) to purchase a bond from the surety. The surety contract spells out each party’s responsibilities:
The obligee’s role is to regulate the credit services industry and protect consumers.
The principal pledges to operate in compliance with state laws and industry regulations.
The surety that underwrites and issues the bond backs up the principal’s pledge with a financial guarantee.
When a valid claim is filed against a credit repair bond, the surety will usually pay it, though the principal must then reimburse the surety. Quick payment by the surety is a courtesy to the claimant—a courtesy that helps assure consumers of the legitimacy and fair operations of the credit services industry. It also gives the principal a little breathing space to come up with the funds to cover the claim.
How Much Does It Cost?
The cost of any bond is calculated by multiplying the full penal amount of the bond as established by the obligee by the premium rate determined by the surety on a case-by-case basis. The annual premium for a surety bond is only a small percentage of the required bond amount, usually between 1% and 5% for a qualified applicant.
In determining the premium rate, the surety looks first and foremost at the principal’s personal credit score. In fact, for bonds in the amount of $25,000 or less, your credit score is the only consideration. For bonds with a full penal amount in excess of $25,000, additional financial information may be required. The primary concern, of course, is the principal’s ability to reimburse the surety for any claims paid on the principal’s behalf.
If you’ve been told you need to obtain a credit repair surety bond, we’re here to help get you the best premium rate possible.
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Phil Bell, So Cal Performance