No, your credit rating is not impacted when you become a guarantor for someone’s loan. A soft search is carried out (ie. a search that does not leave a lasting credit footprint) but this will not affect your credit score. However, there are some exceptional circumstances where your score could be impacted negatively.
When could being a guarantor affect my credit rating?
If the main borrower fails to make all the required repayments for the loan and you default on these payments, your score will be affected.
This is because when you become a guarantor, you enter a legally binding contract that means you are required to step in if the borrower cannot pay the loan, or chooses not to.
As a result, this is why you need to carefully consider if you are willing to become a guarantor, with the associated risks. Once you have signed the contract, you cannot stop being a guarantor.
What is a guarantor liable for?
The guarantor needs to pay the outstanding loan balance if the main borrower stops paying for any reason. This will also include interest and fees.
What if I pay back the guarantor loan promptly and in full?
Your credit score as a guarantor should remain the same or potentially even improve if you make the payments on time. But, if you do experience difficulties with paying back the loan (and you are asked to step in) then this will impact your rating.
Do guarantors get credit checked?
Yes, as previously mentioned a soft search is carried out on your profile when the completed loan application is sent to the guarantor loan lender.
Checking your score is an important part of the approval process, as the loan is largely approved or declined on the basis of your creditworthiness. This is because in most cases the main applicant is applying for this type of loan as they are currently struggling with a poor credit score.
Can being a guarantor affect me getting a mortgage?
No, your chances of getting a mortgage should not be affected. The only scenario where you could have a lower chance of being accepted for a loan is if you are asked to make guarantor loan repayments.
In most cases, you will not need to ever pay the loan yourself. It is only in the worst-case scenario, such as the main borrower falling into financial difficulty, that you may need to pay.
Your chances of getting a mortgage are lowered if you need to pay the guarantor loan as you would essentially be inheriting the debt. That may suggest you are at risk of not paying the loan back.
However, if you show the ability to pay the guarantor loan back promptly then you should have no problem getting further access to credit.
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