Can a guarantor have bad credit?

What criteria do lenders look for in a guarantor?

Each lender will use their own guidelines when it comes to assessing guarantor loan applications. But they all want assurance that they will get their money back. So, they usually look for at least the following criteria in a guarantor:

• Over 21 years old
• A good credit history
• Able to afford the repayments if the main borrower can’t
• Preferably a homeowner, depending on the lender

You can choose almost anyone to be your guarantor – ideally, someone you know and trust. Most lenders won’t accept spouses, as they’re usually financially linked to you already.

Does a guarantor have to have a credit check?

Yes, the lender will want to assess the risk of lending to you. So, they’ll run a credit check on your guarantor to make sure they’re a reliable borrower and are able to repay what you’ve borrowed if you fall behind with payments.

While each lender uses their own eligibility criteria, your guarantor will likely need a good credit score. This is because you and your guarantor would be jointly responsible for paying back the loan.

What credit score does my guarantor need?

Lenders use previous financial behaviour to predict future behaviour. If your guarantor has a good credit history, it should work in your favour, as it will indicate they’re a responsible borrower.

From the lender’s perspective, this will reduce some of the risk involved in lending to you if you have a poor or limited credit history.

Read our guide to find out what is a good credit score in the UK.

What happens if a guarantor can’t pay?

If neither you nor the guarantor can keep up payments, the loan or credit account will fall into arrears. This could lead to missed payments or defaults being recorded not only on your credit report, but also that of your guarantor.

In the event of non-payment, legal action like a County Court Judgment could be taken against you both. If the loan is secured against the guarantor's property, they could even lose their home.

Alternatives to a guarantor loan

If you have a poor or limited credit history, there are other options you could look into, such as a:

1. Bad credit loan

Bad credit loans are designed for people with a poor credit history who may not be able to get a mainstream loan. They can be used for almost any purpose, though the lender will likely ask you to specify this during the application.

Bear in mind that they usually have higher interest rates to offset some of the risk to the lender. Any missed or late payments will have a negative impact on your credit score. But if you borrow responsibly and maintain your payments on time, every time, then your credit score should improve.

2. Credit builder card

Another way you could improve your credit score is to take out a bad credit credit card, otherwise known as a credit building credit card. If you keep up payments, then you could rebuild your credit history over time.

These cards are suitable if you only need to borrow a small amount. They often come with high interest rates to balance out the risk associated with lending to someone with bad credit. If you have a poor or limited credit history, you will have a higher chance of being accepted for one of these cards than a mainstream card.

3. Secured loan

A secured loan could be suitable if you are a homeowner looking to borrow a large amount of money (over £10,000). Secured loans are attached to your property, which gives lenders the reassurance they need to lend large amounts of money with low interest rates despite your poor or limited credit history.

That said, each lender uses their own criteria, and there’s no guarantee of acceptance. Your home could be at risk of repossession if you fall behind with the payments.

4. Budgeting loan

If you’re struggling to pay for essentials and you’ve been claiming certain benefits for at least six months, you may be eligible for a budgeting loan from the government. This could be used to pay for rent (in advance), funeral costs, or footwear, for example.

For more information see the government website.

5. Credit union loan

You could consider joining a credit union where all members pool their savings together. You can then request a loan using these funds, usually for a small amount with low interest rates.

Members normally have something in common. They may live in the same area or work for the same employer, for example. Find your nearest credit union here.

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