When asked to be a guarantor, you might be wondering does being a guarantor affect your credit?
Just being a guarantor usually won’t show on your credit report or affect your credit score. But it can have an impact on your credit if the loan or credit agreement falls into arrears.
What is a guarantor?
A guarantor is a third party who ‘guarantees’ a loan, mortgage, or rental agreement for someone else. Being a guarantor means you agree to repay the debt if the borrower or renter can’t pay what they owe.
Typically, a parent might act as a guarantor for their child’s mortgage. Especially if they only have a small deposit, a low income or bad credit. Some types of personal loan also require a guarantor.
Landlords often ask for a guarantor for a rental agreement, especially if the renter is a student.
Guarantors usually need to be homeowners with a decent credit history and income above a certain level.
Getting expert guidance from a mortgage adviser can be invaluable here; we can connect you with our recommended brokers.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Are guarantors credit checked?
When a borrower puts forward a guarantor, the lender will carry out a credit check on them. Before giving the agreement the go-ahead.
This is normally a ‘soft’ credit search – this type of search isn’t visible to other companies and won’t affect your credit score.
How does being a guarantor affect my credit rating?
If you simply agree to be a guarantor for someone, this won’t normally show on your credit report.
However, if the borrower defaults on payments, you’ll be contacted and expected to step in and pay the money owed. If you fail to pay what’s due, your credit rating will be affected.
In some circumstances, being a guarantor might create a financial association between you and the borrower. Financial associations will appear on your credit report, and companies may check the credit history of your associates before deciding whether to lend to you.
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Your property may be repossessed if you do not keep up repayments on your mortgage.
What happens if the borrower misses a repayment?
If the borrower misses a payment on a guarantor loan or mortgage, the guarantor could be asked to pay instead. If they make the payment(s) promptly there won’t be an impact on their credit score.
However, if the payments aren’t made by either party in sufficient time, the lender could pursue the guarantor for the money. Late or missed payments could then show on the guarantor’s credit file.
Ultimately, if the guarantor has put up their home as security and the debt is not repaid, the lender could try to get it repossessed and sold to settle the debt – although this is relatively rare.
Can I be a guarantor with bad credit?
You won’t necessarily be turned down as a guarantor if you have bad credit. But the higher your credit score, the better.
You might be accepted as a guarantor with poor credit if you agree to put your home up as security for the loan. But bear in mind that if the loan goes into arrears, the lender could repossess your property as a last resort.
Should I act as guarantor for my child’s rent?
It’s fairly common for landlords to ask parents to be a guarantor for their child’s rent while they are at university.
Before agreeing to this, check the details of the contract carefully. In some cases, you may be asked to agree to ‘joint liability’ alongside other parents.
Joint liability means that in the event that one student in a house-share fails to pay their rent, any of the parent guarantors can be held liable for the debt.
This might not seem fair if it’s not your child that has fallen behind. But in this situation any debts attached to the rental agreement for the property could affect the credit records of any of the guarantors.
How long is a guarantor liable?
There’s no general rule about how long a guarantor agreement lasts.
With a mortgage, you might be asked to be guarantor until sufficient equity has built up in the property for it not to be necessary.
With a loan, you’ll probably be asked to be guarantor for the duration of the loan term.
If you guarantee your child’s rent, you’ll be liable for the length of the rental agreement. However, if the property is damaged when the rental agreement ends, you could find the landlord pursues you to pay for the repairs.
Last Updated: December 11th, 2023
