Poor credit won't bar a mortgage broker from getting a surety bond

Being a mortgage broker can be a lucrative career path for those with industry experience and a loyal customer base. With more than 11,000 licensed mortgage brokers throughout the country, competition is growing, but there are ways to stay ahead of the curve in the business.

One strategy for remaining in a position to be profitable as a mortgage broker is through understanding licensing and bonding requirements.

Each state requires mortgage brokers to operate in line with specific regulations as it pertains to dealing with customers. Part of these guidelines include obtaining a licensed mortgage broker bond that ensures work will be completed as per current standards and regulations. While getting a mortgage broker bond is not a complicated task, it can be a challenge when personal or business credit is an issue. Mortgage brokers with less-than-perfect credit who are in need of a surety bond can obtain one by understanding why credit matters and how to fix it before applying.

A surety bond is a form of credit extended to licensed professionals. A surety agency provides bonds to those who meet certain requirements, based on the type of work they do and their personal credit history. A check of credit is necessary because surety agencies pay for claims against the bond, but the bondholder ultimately has an obligation to repay any claim that is successful. If bad credit is an issue for any variety of reasons, a surety agency may be hesitant to approve a mortgage broker bond application.

Bad credit can come from several different past stumbles, including the following collection accounts that have not been paid or settled, bankruptcies or court judgments, liens, late or missed payments, foreclosures, and heavy use of revolving credit, such as credit lines or credit cards

If any of these scenarios impact credit, a mortgage broker is seen as a higher risk to a surety agency. Before applying for a mortgage broker bond, it is necessary to follow the tips suggested for fixing bad credit so approval is easier.

The first step toward repairing bad credit requires finding out what went wrong in one's financial past. Start by requesting credit reports from the three main credit reporting agencies — Equifax, Experian and TransUnion — and then go through each to find negative entries. While there is not much to do about black marks like a bankruptcy or a foreclosure, it is possible to improve credit through other methods.

Fixing errors on credit reports is beneficial in improving overall credit score. Going through the dispute process for incorrect information listed on a credit report takes minimal time, but it can have a significant impact on an overall credit profile. It is important that disputed items are truly inaccurate if the best results are to be obtained, though. In addition to fixing errors, making on-time payments, getting and staying current on debt obligations, and using open credit lines responsibly will help boost a credit report and score over time.

After going through the steps for improving credit, mortgage brokers are in a prime position to apply and get approval for a new mortgage broker bond. However, if the bond requirement is pressing and there is no time to work on credit beforehand, solutions still exist. Some surety agencies will work with mortgage brokers to get an approval, based on other considered factors.

A good surety agency may evaluate the financial standing of the brokerage business, the track record with previous bond claims, and the history in the mortgage business to determine if they can approve a broker bond application.

In other cases, a surety agency may still offer a mortgage broker bond even when these other factors are not in play. The cost of a broker bond may be higher in these scenarios, however. This is because bonds are priced as a percentage of the total bond amount, and that percentage is based on the amount of risk the surety agency accepts with a new bond applicant. If credit is poor, a bond can still be obtained, but the percentage cost will likely be higher.

Getting a mortgage broker bond is a requirement in nearly all states, so it is essential to understand how to acquire it even with poor credit. Start by evaluating why credit is bad in the first place, and then take steps to improve it when time allows. Know that the cost of the bond may be higher until credit improves, but ultimately, a mortgage broker bond is still available even when financial history is not in the best standing.