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Published 06 December 2022
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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 will 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.

Requirements to be a guarantor

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.

Requirements and criteria for guarantors will vary across lenders. But it’s likely that, across the board, 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.

» MORE: Who can be a guarantor?

What credit score do I need to be a guarantor?

There isn’t a specific credit score all lenders insist on for guarantors. However, you will typically need to have a good credit score as the lender will want to see that you can be trusted to repay the loan if the borrower is unable to.

Someone with a bad credit score is likely to be seen as a higher risk by lenders. This may not give a lender confidence that the potential guarantor will repay the loan if the borrower can’t.

If you’re a homeowner, you may be accepted as a guarantor with a lower credit score than a non-homeowner. However, you will likely still need a decent credit score and your eligibility will depend on individual lenders.

The UK’s three main credit reference agencies have different scoring systems. To have a good or excellent credit score, your score needs to be at least 531 out of 1,000 (Equifax); 881 out of 999 (Experian); or 604 out of 710 (TransUnion).

» MORE: What exactly is a good credit score?

Does a guarantor need to 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 approved, particularly if your credit history is less than perfect.

That’s because being a homeowner suggests you are a safer financial prospect. It may also help the borrower to borrow more or 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 if you have a good or excellent credit score. 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 likely also want to make sure that you can afford to cover the debt if the borrower can’t.

Does being a guarantor affect your credit rating?

If the loan is paid 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:

  • When you apply for a guarantor loan, the lender will conduct credit and affordability checks on the guarantor as well as the borrower. This may be a soft check (which won’t show on your score) but a lender could run a hard check too, which will appear on your credit history.
  • 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 can 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.

» MORE: What happens if you can’t make a loan repayment?

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?

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.

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 a guarantor loan isn’t suitable, there are other options you could consider:

Credit builder card

If a 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 good way to build a credit score over time.

Bad credit loan

Even if you have a bad credit history, you may be able to get a personal loan without a guarantor. However, these bad credit loans are likely to come with high interest rates.

Credit union loan

Credit unions can offer loans to people who may not have the best credit history, although individual credit unions will have different criteria for their loans. The interest on credit union loans is capped at 42.6% APR or 3% a month in Great Britain, or 12.68% APR or 1 % a month in Northern Ireland.

Secured loan

Secured loans could help people with a less-than-perfect credit history to get approved for a loan and access lower rates. However, you need to put forward a valuable item, such as your house, to act as security, which the lender could repossess if you default on the loan.

Family and friends

If a friend or family can afford to lend you money, this could be an option to consider. However, it’s worth putting a repayment plan in writing if you do borrow from a loved one, as this can help to avoid disputes in the future.

Budgeting loan

A budgeting loan or budgeting advance could be an option if you are on a low income and receiving certain benefits. These loans come from the government, and you won’t need to pay any interest on the amount you borrow.

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.

Image source: Getty Images

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