Does being a guarantor affect your credit rating?

Becoming a guarantor alone does not directly affect your credit score. During the application, however, avoid having the borrower submit multiple loan applications with you as the guarantor, as this can negatively impact your credit profile.

Typically, the lender will perform a “soft check” on your credit, meaning it won’t impact your score. As long as the borrower makes timely payments, your credit rating remains unaffected. However, if the borrower defaults and you’re required to repay the loan, that default will appear on your credit report, impacting it just as if you’d taken out the loan yourself.

Be aware that becoming a guarantor creates a financial association between you and the borrower, which credit agencies record. This link may affect your ability to secure credit in the future. If you do end up repaying the loan in full, it could even improve your credit score, but ideally, the borrower should manage their payments to avoid complications.

What does it mean to be a guarantor?

A guarantor agrees to cover someone else’s loan repayments if they can’t meet them. To be approved as a guarantor, you’ll need a strong credit history to reassure the lender of your reliability.

Here’s what you’ll typically need to provide to support the application:

1. A valid passport
2. Bank statements from the past three months (showing your income and mortgage payments)
3. Payslips for the last three months, or your signed employment contract if you’re new in your role
4. Proof of homeownership, such as a mortgage statement or deed
5. Proof of address dated within three months of the tenancy start date

Ideally, the borrower will manage their payments responsibly, and you won’t need to get involved. However, if they miss or default on payments, you’re required to step in and cover the costs, ensuring the lender receives repayment.

Becoming a guarantor involves some risk, so it’s best to know and trust the borrower well. For this reason, guarantors are often close friends or family members.

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

Typically, guarantor status doesn’t appear on your credit report. However, if the borrower misses repayments and you need to cover them, this will reflect on your credit report, impacting your credit score.

Additionally, acting as a guarantor creates a financial association with the borrower, which credit reference agencies may record. Lenders might consider this connection when evaluating your applications for credit, as they could review the borrower’s credit history to assess your financial stability.

Remember, guarantor agreements vary between lenders, so ask for specific details on how the loan may affect your credit profile before committing.

Why would someone need a guarantor?

There are several reasons why someone might need a guarantor for car finance. Common situations include having no credit history, starting a new job, earning a modest income, or having a low credit score. In these cases, a guarantor with a strong credit profile can help them secure financing for a vehicle they might otherwise struggle to obtain.

Before deciding to be a guarantor for car finance, consider these key points:

• Why do they need a guarantor for car finance? If their credit history is poor, are they likely to manage the repayments reliably?
• Can they afford regular car finance payments, and do they have stable income to support this?
• Is car finance essential for them, or could they consider alternative options like saving up for a used car?
• If they fail to pay, are you financially prepared to cover their car finance repayments?

Carefully evaluating these questions can help you make a responsible decision about becoming a guarantor for car finance.

What are the positive effects of being a guarantor?

Being a guarantor can positively impact your credit score if you end up covering the loan repayments, as regular, timely payments will boost your credit history. However, this only applies if you assume full responsibility for repayments due to the borrower’s default.

More importantly, by acting as a guarantor, you help a close friend or family member secure financing they otherwise might not qualify for, potentially improving their credit score as they build a positive repayment record. This support can be invaluable for their financial future, helping them gain access to more affordable loans and credit options down the line.