Does being a guarantor affect your credit rating?

Roman Danaev

25 July 2021

Are you thinking about becoming a guarantor for a friend or family member? If so, the person who has asked you to guarantee their loan most likely has a poor credit history, so there’s no surprise you’re worried about what might happen to your own credit score, too.

In this article, we’ve gathered all the most important details on financial borrowing in the UK and how it may impact your credit rating. Keep reading to avoid common mistakes often made by those who did not dig up information before becoming someone’s guarantor.

What does it mean to be a guarantor?

A guarantor is a person who agrees to make loan payments for someone else if they become unable to pay off the loan on their own. Obviously, not everyone can become a guarantor – you’ll need to have a good credit score to be approved by a lender.

You may want to know right away what documents you’ll need to provide as a loan guarantor:

  • Your valid passport
  • Recent bank statements for the last three months (from your account showing where you pay your mortgage and where your pay goes into)
  • Payslips for the last three months (if you have only just started their job/or only have 1 or 2 payslips, you will need to provide your employment contract signed by both you and your employer)
  • Proof of homeownership (either a mortgage statement or deed)
  • Proof of address (must be dated within three months of the tenancy start date)

If everything goes well, and the person who’s got the loan is responsible enough to manage their finances successfully by themselves, you won’t even have to worry. However, if the borrower starts missing payments, makes them too late, or stops paying back the loan at all, you will have to step in and pay on their behalf. Thus, you guarantee that the repayment will be met.

Without a doubt, acting as a guarantee will require taking on a certain risk, so you should have known the borrower long enough to trust and believe them. That’s why it is usually someone from a close circle of acquaintances who would ask to be your guarantor.

How can being a guarantor affect my credit rating?

Just becoming a guarantor does not reflect on your credit score. But during the loan application process, the borrower should not make multiple loan applications with you as guarantor, as this will not affect your credit history positively.

Note that we’re talking about a guarantor loan in general here, but if you’re particularly interested in guarantor car finance, please visit this page to learn about its conditions and specificities.

As a guarantor, you’re going to be “soft-checked,” which means there will be no direct impact on your rating, so there’s nothing you should be concerned about. As long as the payments are made on time by the borrower, it’s not going to affect your credit score either.

But if the account goes into default and you become responsible for paying back the loan, the record of the default will be lodged against you, making the same impact as if you had taken the loan yourself.

Furthermore, as soon as you become a guarantor, a financial association is created and will be recorded at all credit agencies. This means that the borrower may have a serious impact on your ability to get any type of financial help yourself in the future.

If you’re able to pay off the loan all by yourself, you might even improve your own credit report, although it is always better to not let the borrower get in trouble in the first place.

What are the positive effects of being a guarantor?

As mentioned above, if you're a guarantor, there’s a chance that your credit score will be increased. To have your credit history slightly improved, the borrower will have to stop making repayments, which means that all the responsibility for paying off the guarantor car loan will be transferred to you.

Other than that, you will have helped your close friend or family member finance something they really need, and their own credit score might be improved as well.

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