Credit Score Basics > Does being a guarantor affect credit rating?

Does being a guarantor affect credit rating?

Wollit Team2 minute read · Updated 17th September 2024

If you’re thinking about becoming a guarantor for someone’s loan or maybe rental agreement, you might be worried about how it could affect your own credit rating.

Well, in the UK, being a guarantor means that you agree to pay off someone else's debt if they can't. This is as serious as it sounds – which is why we’ll explain what being a guarantor means, how it can impact your credit score, and what you should know before saying yes.

What is a guarantor?

A guarantor is someone who promises to pay a loan or rent if the main borrower fails to do so. Usually, guarantors are family members or close friends who have a good credit history and are at least stable financially. Guarantors need to be at least 21 years old and often must own their home.

Guarantors are needed because lenders often ask for a guarantor when the borrower has bad credit or is applying for their first loan. The guarantor essentially provides extra security for the lender.

This means that by agreeing to be a guarantor, you are entering into a legal contract. If the borrower doesn’t pay, you are fully responsible for covering the payments.

How does being a guarantor affect my credit rating?

Being a guarantor itself doesn’t usually hurt your credit score. When you agree to be a guarantor, the lender will often do a soft credit check on you. This does not affect your credit score and is not visible to other lenders. It’s just a way for the lender to see your financial situation.

With that being said, it can indirectly affect your credit. Here is how:

If the borrower fails to make their payments and you have to pay instead, this will show up on your credit report.
Failing to repay what you now owe can harm your credit rating.
When you become a guarantor, this also creates a financial link between you and the borrower. This link is visible on both your credit reports, and lenders may look at both of your financial situations when deciding whether to lend money in the future.

Can I be denied as a guarantor?

Yes, lenders usually want guarantors with good credit scores and stable incomes. If your financial situation doesn’t fit this profile, they may deny your friend’s or relative’s application.

How long am I responsible as a guarantor?

You are responsible for the loan until it is fully paid off or until the lender agrees to release you from the agreement. Always check the terms before signing anything.

How can I protect your credit score as a guarantor?

If you decide to become a guarantor, here are some tips to help protect your credit rating:

Make sure you fully understand what being a guarantor involves.
Make sure that you trust the borrower’s ability to repay the loan or the rent.
Keep in touch with the borrower about their financial situation and remind them of their payment responsibilities.
If possible, keep track of whether payments are being made on time by checking in with the borrower or reviewing statements together.
Discuss what will happen if they cannot make their payments and how both of you will handle that situation.

Finally, try to help your friend to build their own credit history.

One of the ways to do this is by downloading a credit-building app like Wollit. Wollit reports their fixed fee monthly subscription as a loan repayment to the credit reference agencies (Experian, Equifax, and TransUnion).

This helps them improve their credit history by showing that they can pay debt on time, one of the main factors that influences your credit score.

On top of this, Wollit can also report their monthly rent payment to Experian, adding another line in their credit report that shows lenders they’re responsible and pay their bills on time. Eventually, this will help your friend get the loans they want without piggybacking on your credit profile.