Does Being a Guarantor Affect My Credit Score?

Your credit rating will not be affected by being a guarantor for a loan. When you apply to become a guarantor for a loan, the lender will carry out a soft credit check, but this won’t have an impact on your credit score.

However, whilst becoming a guarantor won’t affect your credit rating, there are certain circumstances where it can, should the borrower break the terms and conditions of the loan. It’s therefore important to know what those circumstances are, and how they may affect your credit score.

What exactly is a guarantor? 

A guarantor is someone who helps another person – it could be a family member or maybe a good friend - to take out a loan. As a guarantor, they agree to pay off the debt should the person taking out the loan become unable to make the repayments themselves.  

This agreement is made with and approved by the lender before any money is handed over, so it’s not a decision to be taken lightly. A common example of a guarantor is a parent guaranteeing their child’s rent payments for a rental property. 

They must also have a good credit history. If you’re thinking about being a guarantor for someone you know, think about it carefully, because it’s a serious commitment.  

It won’t impact your credit rating if you’re just acting as a guarantor. However, the person borrowing the money should avoid applying for multiple loans and they should certainly keep up with their repayments, otherwise the guarantor will be liable for the outstanding amount.  

That’s why it’s so important to be sure that being a guarantor is right for you. If you go ahead, the lender will need to verify your credit history before you sign a guarantor agreement, which is typically a soft credit search. This won't impact your credit score and is invisible to other businesses. 

As a guarantor, providing the borrower makes all the required repayments on time, your credit score won't be impacted either. Nonetheless, if you have to pay any of the borrower’s repayments, or if the loan defaults, this will be shown on your credit report. Your credit score will be impacted if you don't pay the debt. 

Who can be a guarantor?

Almost anyone can be a guarantor when you have different bank accounts. A guarantor is typically a spouse or parent, but it can also be a friend. However, you ought to only serve as a guarantor if you feel that you will and can repay their debt.

To become a guarantor you should:

• Be at least 21 years of age

• Have good credit 

• Be financially stable 

If you are a homeowner, your application will have more credibility.

You should think about the potential pitfalls if you're thinking about serving as a guarantor.

You will be responsible for the debt if the person defaults on the loan. Apart from financial hardship, these circumstances may negatively influence friendships or lead to disputes in the family. 

Can being a guarantor affect my credit rating?

Being a guarantor alone has no impact on your credit rating. However, the borrower should refrain from submitting several loan applications while using you as a guarantor because this would negatively impact your credit history.

The lender will verify your credit before you sign a guarantor agreement. This credit search is typically a soft search, that won't lower your credit score and is invisible to other businesses.

Your credit score won't be impacted if the borrower makes all of the required repayments on time. However, if you have to pay for any of the borrower's payments or if the loan or mortgage defaults, this will be shown on your credit report. Your credit score will be impacted if you don't pay the debt.

If I’m a guarantor, will it show up on my credit report? 

Not necessarily. If you're a guarantor, it wouldn’t typically appear on your credit report generated by the credit reference agencies. However, there are other ways that being a guarantor might impact your credit rating:

• You will be liable for making the loan repayments if the borrower is unable to do so, and this will appear on your credit report.

• By signing on as a guarantor, you might establish a financial association with the borrower. Your credit report will detail any financial connections, and businesses may look at their credit history to determine whether or not to approve you.

It's crucial to keep in mind that guarantor loans and agreements can differ from one lender to another. Before agreeing to anything, ask the lender to clear up any questions you may have, especially on how it may affect your credit record.

Why would someone need a guarantor?

There can be many reasons why someone would want you to be a guarantor. This includes:

• They have no credit history

• They have started new employment

• They don’t earn a high salary

• They don’t have a good credit score

They may need to get a guarantor with a good credit score for a mortgage or to apply to rent a property, for a personal loan, or even for car finance. Before deciding to be a guarantor, consider:

• Why do they require a guarantor? If they have an unfavourable credit history, for example, what is the likelihood that they will keep up with payments?

• Will they be responsible?

• Why are they in need of a loan? Could they not save up instead?

• If they don’t pay, can you afford to?

• Why don't loans without guarantors work for them?

Does it cost money to be a guarantor?

If you’re a guarantor for someone, it may cost you money if you have to make payments on their behalf. If you can’t make the payments, for e.g. on a mortgage, your home could be at risk of being repossessed. 

Can I be a guarantor if I have bad credit?

If you have a low credit score, it's unlikely that you'll be able to serve as a guarantor because lenders are hesitant to accept guarantors who have a poor credit history.

There isn't a specific credit score that will ensure you get approved as a guarantor for someone. 

Every lender has different criteria for lending. Whether you can afford to repay the loan in the event that the borrower is unable to, is what the lender is most interested in. Because of this, some lenders favour guarantors who are employed full-time and those who are homeowners.

I want to get a mortgage - will being a guarantor affect my chances? 

It could, potentially. The intention to help a relative or friend may be well-meaning, but being a guarantor may have an impact on your ability to get a mortgage in the future. This is because being a guarantor means you may be required to cover the repayments or pay off the debt, so that could impact the way a future mortgage lender views your affordability. 

Mortgage lenders look at every part of your income and expenses, including your debts, so if you’re a guarantor, it might prevent you from obtaining a second mortgage, too. In any case, always check the terms of the loan agreement before you commit to it. 

If you can’t make the payments on your mortgage, for example, your home could be at risk of being repossessed. 

Are there any benefits to being a guarantor?

As mentioned, there is a chance that being a guarantor will raise your credit score. The borrower will need to stop making payments in order for you to somewhat improve your credit history, which means that you will be entirely responsible for repaying the guarantor loan.

Aside from that, you will have assisted a close friend or member of your family in financing something they truly needed, and their credit score may even have increased as a result.