Your credit rating will not be affected by being a guarantor for a loan. When you apply to become a guarantor, the lenders will carry out a soft search credit check, however this will not have an impact on your credit score.
Whilst becoming a guarantor in itself will not affect your credit rating, there are certain circumstances where it can. It’s important to know what these circumstances are, and how they can affect your credit score; some potential damaging it whilst others can help to improve it.
Your credit score can be affected when the main borrower can no longer keep up with the loan repayments, meaning you, the guarantor, will have to begin repayments on the borrower’s behalf. Becoming responsible for the loan repayments can have an impact on your credit score.
If you keep up with repayments, your credit score should remain intact, and can even sometimes improve. However, if you struggle to keep up with repayments, or like the main borrower cannot afford to make them, this can damage your credit score.
Therefore, before accepting to become someone’s guarantor, it’s crucial that you understand all of the responsibilities you hold in this position, and whether you are prepared to take on such a role.
In addition to this, reputable lenders will also carry out a thorough investigations into guarantors before approving a loan, assessing their financial situation and whether they are deemed responsible enough to manage the repayments if the main borrower defaults.
As the guarantor of a loan, you will be liable to pay back the remainder of a loan, including any interests and additional fees, if the main borrower can no longer keep up with repayments. If you find yourself unable to keep up with the repayments yourself, it’s vital that you contact the lender as soon as possible, and they should help you to come up with a manageable solution.
After signing a contract as the guarantor of the loan, you are legally obligated to keep up with repayments following the main borrower’s inability to. If you are able to make the repayments but refuse to do so, the lenders can then take legal action, and begin a court order to collect the debt they are owed from you.
Yes, guarantors will have their credit score checked as a part of the application process. If your score is deemed acceptable for the lenders, this will help to further the chance of getting the loan approved. Loans are often rejected due to a lack of credit-worthiness, therefore a guarantor’s credit rating is a key part in the application’s success.
You can find out your credit score via the UK’s three credit referencing agencies (CRAs), these being the following:
As previously mentioned, a soft search will be carried out on the guarantor before the application is approved/rejected. This type of check will not affect your credit rating as hard searches can do.
Taking on the role of a guarantor can be a big responsibility. It’s important to understand exactly what this role will entail, and the requirements needed to ensure success in an application. Most lenders will require a guarantor to have a strong credit rating, as they are an assurance that the loan will be paid back if the main (and often less creditworthy) borrower cannot.