Can I be a Guarantor with Bad Credit?
Your credit history matters if you want to be a guarantor for a loan. We explain what lenders expect, the kind of credit checks they will need to do and some possible alternatives.
To be a loan guarantor, you will need to have a good credit score. If you’re a guarantor, you reduce the risk to lenders by agreeing to repay the loan if the person borrowing the money can't.
So if you want to help a close friend or family member get a loan, you’ll be in a better position to do it if you have a good credit score because the lender will consider you a safer bet.
With that said, there are ways to improve a credit score and the borrower could consider alternatives to guarantor loans.
What credit does a guarantor need?
To be a guarantor, you will need to have a good credit history, be up to date with payments on any loans or credit and be financially stable. The lender will want to know that you are in a position to pay off the loan if the borrower can’t.
You might have a close friend or family member who needs this guarantee as they have a bad credit score, no credit history or their income is too low, for example. It could be to help them secure anything from car finance to a mortgage.
There isn’t a specific credit score all lenders insist on for guarantors, and requirements and criteria will also vary across lenders. But it’s likely to be the case across the board that as a guarantor, you must:
- be at least 21
- have a good credit history
- have a separate bank account from the applicant
- be able to afford the repayments if needed
You will usually also need to be a homeowner, but some lenders allow renter guarantors.
Will the applicant need a credit check if I am a guarantor?
Yes, the lender will run a credit check on the person who is applying for the guarantor loan. This will focus more on whether the applicant has had serious financial issues, such as bankruptcy or insolvency, than their credit score.
The lender will also carry out a credit check on you, the guarantor. This will show whether you have repaid any money you’ve borrowed in the past and will reveal your credit score.
Like the borrower, you will also have affordability checks. This is so the lender can be confident that you have the income, savings or assets to be in a position to act as a guarantor.
» MORE: What does a credit check show?
How being a guarantor might affect your credit rating
If the loan is paid off in full with no need for you to step in, guaranteeing a loan shouldn’t have an impact on your credit history or your credit score.
However, being a guarantor could have an impact on your credit history and show on your credit report in the following ways:
- If the borrower fails to keep up with repayments, the debt becomes your responsibility to pay off. If you don’t then cover the debt, it will affect your credit score and will appear on your credit file and the borrower’s too. Not paying what’s due could also lead to debt collection or court action.
- Acting as a guarantor can create a financial association with the person you are helping out. This might be considered if you apply for a loan or credit in the future.
- If you do apply for a loan or credit in the future, such as a mortgage, the guarantor loan might be considered as part of any affordability checks.
Make sure you’re aware of the risk of the agreement affecting your credit record before going ahead.
Must a guarantor be a homeowner?
You don’t always need to own a home to be accepted as a loan guarantor, but it may help your chances of being accepted. That’s because being a homeowner suggests you are a safer financial prospect. It may also help the borrower to access lower interest rates on their loan.
If you rent or are living with family, it may still be possible to act as a guarantor through a non-homeowner guarantor loan. The lender will want to see that you have a record of paying debts on time or managing credit, and are a reliable guarantee for the loan. In addition, they will also want to make sure that you can afford to cover the debt if the borrower can’t.
» COMPARE: Non-homeowner guarantor loans
Can they get a loan without a guarantor?
If the borrower is struggling to be eligible for loans and you aren’t in a position to guarantee a loan for them, there are bad credit loans that don’t ask for a guarantor.
However, without the extra security of a guarantor, these non-guarantor loans can offer high interest rates. Even guarantor loans can be an expensive way to borrow when compared with standard personal loans, so it makes sense to consider possible alternatives before going ahead.
It is crucial that you don’t feel pressured to be a guarantor, though. Before you agree, be clear on what will happen if the borrower can’t pay and make sure that you could afford to pay the loan for them, if it came to that.
» COMPARE: No guarantor bad credit loans
Alternatives to guarantor loans
If the borrower has a poor or limited credit history, they could try to improve their credit score so they don’t need a guarantor to borrow money. This may also give them more options and potentially access to lower interest rates. It may take a few months to make a difference, but it could be worthwhile. However, evidence that you have struggled with debt, such as default notices for missed payments and county court judgments (CCJs), stay on your credit report for six years, so it may take longer for your credit score to recover.
If lack of credit history is the issue, paying for goods or services with a credit builder card and then repaying the money you owe each month and on time might be a way to build a credit score over time.
There may be other ways to access the funds that you could consider. These include a credit union loan or a government budgeting loan, or even borrowing from family or close friends if this is an option – but work out a budget and put a repayment plan in writing to avoid disputes in the future.
WARNING: Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
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Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more