Your personal credit history and score has far-reaching implications, beyond simply getting approved for new credit accounts. Employers, insurance companies, prospective creditors, and surety bond agencies all look to your credit report for indications of your level of financial responsibility. For auto dealers, whether new to the business or old pros, must consider their personal credit as a component of securing an auto dealer bond.
State regulations require auto dealers to be bonded for the protection of consumers, and unlike an insurance policy for legal liability, a surety bond is not a transfer of risk to the bonding agency. It is a promise to pay by the agency for any claims made against the auto dealer, but any money paid for a claim must be paid back over time. This is why personal credit becomes an issue when applying for a new auto dealer bond. Without strong credit, there is still an opportunity to get bonded; it just requires some additional steps along the way.
Clean up Personal Credit
The best course of action if you have bad credit as an auto dealer is to work toward improving your credit profile in any way possible. The most significant negative marks on your credit report may include:
- Missing payments on credit accounts
- Filing for bankruptcy
- Having a home go into foreclosure
- Having a state or federal tax lien
- Accounts in collections
In addition to these common blunders, your personal credit may take a hit due to excessive use of available credit (i.e., maxing out credit card limits), or credit reporting errors that are no fault of your own. However, each of these potentially damaging entries on your credit report can be addressed.
Reviewing your credit is the first step in correcting errors and working toward improving your overall credit score. You have the opportunity to retrieve your credit report for free once per year from the three major credit bureaus, either by requesting it in writing or through a brief online form. Once you have received your credit report, first look for errors like inaccurate account balances, missing payment entries that are not correct, or other issues that can be fixed easily. Any erroneous details in your credit can be disputed, and if found to be inaccurate, they will be removed.
Fixing errors is the easy part; working to improve your credit standing takes more effort. Paying down account balances to a reasonable amount, to 30% or below of your available credit, is beneficial. Working to resolve bigger issues like tax liens, collections accounts, and delinquent payments also has a positive impact on your credit score. Take these steps before applying for your next auto dealer bond to ensure you can get through the application process without frustration.
Work with the Right Surety Agency
Not all surety agencies are created equal when it comes to auto dealers with bad credit. Those that work with a large pool of bond providers will benefit auto dealers concerned with personal credit issues. This is because having access to more available bonds means there is likely an option for riskier applicants. However, bond pricing may be higher for those with poor credit histories or scores. It is important to recognize this additional expense, but also know that as credit improves, your surety agency may be able to get you a more affordable auto dealer bond in the future.
Even though personal credit is a major factor in securing an auto dealer bond, surety agencies also look to other components of the business, including previous claims history. For auto dealers who have been in operation for some time, working to avoid official claims against a bond is necessary to ensure bond approval in the future. Auto dealers who are starting their dealership may benefit from expert guidance from their surety company or other professionals in the space as it relates to potential claims. Customer complaints should be handled promptly and with special care to help sidestep a claim from going through. If the issue can be resolved outside the claims process, such as through a settlement or other agreement, this helps to improve an auto dealer’s standing even when credit is an issue.
Get Professional Help
Finally, if you have bad credit as an auto dealer and feel overwhelmed with the bonding process, it may be in your best interest to seek out professional assistance. A credit repair organization, a business or financial consultant, or a legal professional may be able to provide actionable advice not only for improving credit standing but also in the realm of sound business practices. Remember that surety agencies review your total picture, not just your credit information, when considering a bond application. Getting the right help before your next auto dealer bond application is due is a step in the right direction if you don’t feel confident in resolving issues on your own.
Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.