Does being a guarantor affect your credit?

Being a guarantor won’t affect your credit score as long as the borrower keeps up with their payments. But if they don’t, this can impact your ability to get credit in the future.

In this guide, we look at how being a guarantor can affect your credit, why it matters, and what you can do to protect yourself.  

What is a guarantor?

A guarantor is someone who agrees to take on another person’s payments if that person is unable to make the payments themselves. Guarantors are usually close friends or loved ones helping someone they know and trust get a credit agreement, like a loan or mortgage. 

For instance, you might be asked to be a guarantor as a parent or guardian for your child taking their first steps towards renting or owning a home. 

This can be a great way to help if your child is moving away for university or trying to get a foot onto the property ladder. As their guarantor, you act as a safety net, guaranteeing their landlord or mortgage lender that you can cover the payments if your child cannot (hence the name).

With that in mind, being a guarantor isn’t just a formality. You’ll be signing a legal contract to pay on behalf of someone else, so you should give it careful consideration before you say yes.

If that person doesn’t keep up with payments, it’s your responsibility to pay. In this case, you’ll have the same obligations as the original borrower. So, a landlord or lender will be legally entitled to ask you for the money the borrower didn’t pay. 

What do lenders look for in a guarantor?

Lenders will typically want to make sure you fit some basic requirements before you become a guarantor:

• You’ll need to show that you have a good credit score yourself. To see whether you do, the lender may perform a “soft” credit check on you.

• You’ll also need to demonstrate that you can afford the repayments. For instance, the lender or landlord may want evidence of your salary or the amount of savings you have available. 

These checks are necessary for lenders to see that you can afford to repay the debt if required. They’re an important part of any loan application. 

Does being a guarantor affect your credit score?

Simply being a guarantor won’t affect your credit score. As long as the borrower keeps up with their rent or their loan repayments, you won’t be affected by being a guarantor at all.

It’s worth noting here that your credit score is at risk mainly in the case of bank loans. If you’re a guarantor on a rental contract, your agreement is just between you and the landlord. In any case, where the renter doesn’t pay, you legally owe the landlord, of course. However, they may not tell any credit reference agency—meaning that your credit score may not be affected.

There are two important ways that being a guarantor can affect your credit report. 

1. If the borrower defaults on a loan, it will impact your credit score

If the borrower fails to make repayments on their loan, the responsibility for paying falls on you as the guarantor. That’s exactly why lenders ask for guarantors, so that they have the reassurance that someone will repay the loan if the borrower can’t.

But imagine that you can’t cover any payments the borrower has missed. In this case, the borrower “defaults” on the loan—and this will affect both you and the borrower. 

Any default will be recorded in your credit report and the borrower’s report. This can seriously impact your ability to take out a loan yourself in the future. 

Now, this doesn’t apply if the borrower has only made a couple of late payments, which are likely to be recorded in their credit report. It only has a knock-on effect on you if the borrower can’t pay at all and you’re officially told it’s your responsibility to pay. 

2. By becoming a guarantor, you’re entering a financial relationship with the borrower

Secondly, by legally agreeing to become a guarantor, credit reference agencies may see you as financially associated with the borrower (although this isn’t always the case). 

A financial association is the technical term for anyone you share some sort of financial agreement or product with. For instance, you might have a joint credit card with your partner, or you might have taken a mortgage out with a family member. You may also be considered to have a financial association with the person you’re a guarantor for.

This matters because financial associations show up on your credit report. Anyone considering giving you a loan may check the credit scores of your financial associates to get a full picture of your financial situation. 

For instance, imagine that you share a credit card with your partner, and they’ve gone bankrupt. Lenders may assume you would help to pay their debts—and this would affect your ability to pay your own. As such, they may not be willing to offer you a loan.

When you become a guarantor, the borrower’s name may appear on your credit record. This means a lender could run a credit check on that name to obtain further details. If the borrower has bad credit—or there’s a risk that they will have it in the future—then you should think carefully about whether you want to be financially associated with them. 

Again, this is unlikely to happen if you’re the guarantor on a rental agreement. Landlords won’t typically tell credit reference agencies that you’re acting as a guarantor, so you won’t be financially associated. 

What happens if your credit score is affected? 

If your credit is affected—either by being a guarantor or by something else—it can have a big impact on your financial situation. 

Most importantly, it can mean that you’ll struggle to take out a loan or mortgage yourself. Lenders and mortgage providers check your credit report when they decide to give you a loan. If your credit has been negatively affected by a default or by a financial association, it may mean they’ll be reluctant to lend at all. 

Either way, there are some important things you can do to protect yourself and your credit score if you’re considering becoming a guarantor.

Steps worth taking to protect and improve your credit score as a guarantor

1. Only become a guarantor if you really trust the borrower

It’s a big responsibility to become a guarantor, and it can have serious consequences. Before you become a guarantor, be sure that you want to be financially associated with that person. 

For instance, you can ask yourself:

• Do you trust the borrower? Usually, people only become a guarantor for a close friend or family.

• Do you know how the borrower manages money? Do you have confidence they can stick to the payments based on their current income? Are they careful with their spending? Can they budget? If you don’t know the answers to those questions, you may not be close enough to be their guarantor.

• Can you pay the loan back if they can’t? While lenders will check your ability to afford any repayments, you’ll want to think about this for yourself too. For instance, if paying on the borrowers’ behalf puts too much pressure on your expenses, it may not be a good idea.

It’s important to know that once you’ve entered into a guarantor agreement, you can’t back out of it. That’s because the loan itself is often dependent on your being a guarantor. 

2. Pay on time (if you have to)

Remember: if you’re a guarantor, your credit score will only be affected if you and the borrower can’t pay back the loan. If you can make the repayment on time, then you won’t have any negative impacts on your credit. 

3. Ask credit reference agencies to remove financial associations from your credit record

Once the borrower has repaid their loan, your financial association is technically over. At this point, you can ask credit reference agencies to remove the financial association from your credit record. This can be a good idea if they have a low credit score and you want to apply for a loan yourself. If lenders see that you’re associated with someone with bad credit, they may be reluctant to lend. To remove the financial association, you can either get help from the Checkmyfile customer care team or contact the credit reference agencies directly. 

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