Can a guarantor have bad credit?

What is a guarantor?

A guarantor is someone who agrees to pay back a loan if the borrower can't make the payments. When you act as a guarantor, you're making a serious promise to the lender. You're saying, "If this person doesn't pay, I will".

Lenders ask for guarantors when they think a borrower might struggle to repay a loan. This often happens when someone:

• Has a poor credit history
• Hasn't borrowed money before
• Earns a low income
• Works in a job that isn't permanent

Having a guarantor makes the lender feel safer. They know there's someone else who can step in if things go wrong. This extra security can help people get approved for loans they might not get on their own.

Common guarantor use includes guarantor loans from specialist lenders, and tenant guarantor agreements for renting property.

Can I be a guarantor with bad credit?

Generally, no. Most lenders want guarantors to have good credit. This makes sense when you think about it. The whole point of a guarantor is to provide security for the lender. If you have bad credit, the lender might worry that you won't be able to make the payments either.

However, bad credit doesn't always mean you can't be a guarantor. It depends on:

• How bad your credit is: If you had a few missed payments years ago, you might still be accepted. But if you've had County Court Judgments (CCJs), defaults, or have recently entered an Individual Voluntary Arrangement (IVA), lenders will be more cautious.
• The lender's rules: Different lenders have different standards. Some are stricter than others. A specialist guarantor loan lender might be more flexible than a high street bank.
• Your current situation: Even with past credit problems, you might still qualify if you now have a stable income, steady job, and own your home. Lenders look at the complete picture.
• The loan amount: Smaller loans might be easier to guarantee with bad credit than larger ones.

The best approach is to be honest. If you're asked to be a guarantor, explain your credit situation to the lender. They can tell you whether it's likely to be a problem.

Does a guarantor get credit checked?

Yes, lenders always check a guarantor's credit report. This is a crucial part of the process.

The lender needs to know that you can afford to take on the loan payments if needed. They'll look at:

• Your credit score and credit history
• Any missed payments or defaults
• Your current debts and financial commitments
• Whether you've faced bankruptcy or insolvency
• County Court Judgments or other public records

The credit check also helps the lender confirm your identity and check that you are who you say you are.

This check leaves a "footprint" on your credit report. If you apply to guarantee several loans in a short time, multiple credit searches might make other lenders cautious. They may wonder why you're taking on so much financial responsibility.

Remember, the lender isn't just checking if you have bad credit. They're checking if you can realistically afford to make the loan payments if the borrower stops paying.

Does being a guarantor affect your credit score?

Being a guarantor can affect your credit score, but it depends on what happens with the loan.

• When you first become a guarantor, the loan might appear on your credit report as a financial connection to the borrower. This tells other lenders that you're responsible for this debt.
• If payments are made on time, being a guarantor shouldn't damage your credit score. In fact, if the loan is managed well and paid off successfully, it might even help show that you're financially responsible.
• If payments are missed, that’s when problems can start. Late or missed payments could appear on your credit report. This can seriously damage your credit score. Remember, as a guarantor, you're equally responsible for the debt.
• If you have to make payments, this can affect your ability to borrow money yourself. Other lenders will see that you're already committed to this debt. This may make them less willing to lend to you, or they might offer you less money.

Being a guarantor also affects something called your "debt-to-income ratio." Even if you're not making the payments, lenders consider the loan as potential debt when you apply for credit. This could make it harder to get a mortgage, car finance, or other loans.

The bottom line

While you can sometimes be a guarantor with bad credit, it's not ideal. Lenders prefer guarantors with good credit scores and stable finances. If you're considering becoming a guarantor, think carefully about whether you can afford to take on someone else's debt.

Only agree to be a guarantor if you trust the borrower completely and you could afford the loan payments yourself if needed. Remember, this is a serious financial commitment that could last for years.

If you're struggling with debt

If you're worried about debt or finding it hard to keep up with payments, free help is available. You don't have to face money problems alone.

Several trusted organisations offer free, confidential advice:

• Citizens Advice
• MoneyHelper
• Money Wellness
• National Debtline
• StepChange

These organisations can help you understand your options and create a plan to manage your debts. Reaching out for help is a positive first step towards getting back on track.