How Does Personal Credit Impact Probate Bonds?

When applying for a probate surety bond, surety companies typically require a credit check from the estate administrator, as well as details about the estate and other pertinent information. In this article, we discuss the purpose of the credit check and why surety underwriters use this information to analyze applications.

Understanding Probate Bonds

Before examining the significance of personal credit, it's important to understand what a probate bond is and its purpose. A probate bond, also known as an estate bond or fiduciary bond, is a type of surety bond enforced by county courts throughout the United States. These bonds protect an estate's beneficiaries and creditors by guaranteeing the estate administrator will fulfill their duties ethically and according to the law.

If the estate administrator causes financial damage, the damaged party can be reimbursed by filing a claim on the bond. The bond safeguards against potential fraud, negligence, or mismanagement caused by the fiduciary’s actions. Unlike traditional insurance, if the surety company pays a claim, the administrator is responsible for reimbursing the surety company, a concept known as indemnification.

The Role of Personal Credit

When applying for a probate bond, the applicant's personal credit history and score play a pivotal role in the approval process. Surety companies use creditworthiness as one of the primary indicators to assess the risk associated with issuing a bond. A strong credit profile demonstrates financial responsibility and reliability, crucial characteristics for a successful fiduciary. The surety also uses credit to assess the applicant's ability to repay the surety company if a claim is paid.

According to Trust & Will, a fiduciary is “someone who acts on behalf of another individual” and manages another individual’s assets or property. From the surety’s perspective, applicants who can manage their own finances, as evidenced by a good credit score, are more likely to manage the assets of an estate successfully.

Factors Impacting Personal Credit

Several factors contribute to an individual's personal credit standing, including payment history, credit utilization, length of credit history, and new credit accounts. A history of Several factors contribute to an individual's credit standing, including payment history, credit utilization, length of credit history, and new credit accounts. A history of timely payments and low credit utilization can improve one's creditworthiness. Conversely, late payments, high debt levels, and a short credit history negatively impact credit. Before petitioning to become an administrator in an estate, applicants should find out their current credit score to ensure they will qualify for a probate bond.

Why Personal Credit Matters

• Risk Assessment: Surety companies evaluate the likelihood of a bond claim by reviewing an applicant’s credit and financial history. A poor credit score indicates financial instability or past issues with meeting financial obligations, which raises concerns about the applicant's ability to fulfill their duties as a fiduciary.
• Premium Rates: Applicants with lower credit scores may still be eligible for probate bonds but will likely pay higher premium rates or require a co-signer before approval. Surety companies counteract the risk of poor credit by charging higher premiums, which can increase the cost of administering an estate and reduce the inheritance the heirs receive.
• Reputation and Trustworthiness: Beyond financial metrics, personal credit can also help surety companies determine an individual's integrity and reliability. A solid credit history indicates responsible financial behavior and instills confidence in the surety company that the administrator will manage estate funds appropriately.
• Claim Reimbursement Applicants sign an indemnity agreement when applying for a surety bond that requires the applicant to repay the surety company for any claims paid and other claims handling costs. The surety uses credit history to determine if the applicant can repay the surety company in the event of a claim.

How Credit Impacts Probate Bond Underwriting

Obtaining a surety bond can often be a roadblock to becoming an estate administrator when beginning the probate process. Personal credit history and score are critical factors in the approval process, and applicants with poor credit history may suffer from lengthy delays or higher expenses when administering an estate. By maintaining a strong credit profile, estate administrators can demonstrate their financial responsibility and prove their credibility as fiduciaries, ultimately leading to an efficient and responsible estate settlement.

Applying for a Probate Bond with Poor Credit?

At Jet, we take a holistic approach to probate underwriting and look at the entire estate, not just a credit score. We do not require credit checks on probate bonds up to $25,000 or up to $50,000 if you have an attorney. If the estate administrator cannot qualify because of credit, we offer multiple solutions. An applicant can obtain a co-signer with strong credit to bring up the overall strength of the application. Additionally, we can obtain the co-indemnity of all the heirs, reducing our risk as the surety and ultimately helping the administrator move forward in the case. For larger estates, we can set up a limited joint control agreement or advise the principal to open a blocked account with the court to reduce their bond amount.

If you need help qualifying for a probate bond with poor credit, give us a call at (855) 470-0877 to speak to one of our probate bond experts.