While being a guarantor can be a very positive thing to do for a friend or family member, it is important to be aware that it is a great responsibility. If someone asks you to be a guarantor, you should think long and hard about the various consequences that may arise from the situation. Even if you implicitly trust the person that you are acting as a guarantor for, it makes sense to be aware of the potential problems or situations that may arise if something was to go wrong and the borrower was to default on a payment.

One issue that may not come to mind at first, but could have serious consequences or implications for a guarantor is what would happen to their credit score if the borrower fails to meet the payment plan? It is important to ask can being a guarantor affect your credit rating and the experts indicate that there may be an impact on your credit rating.

Being a guarantor can impact on your credit rating

This can work in two ways. If the borrower makes all of the payments on time, you could see your credit rating being boosted in a positive manner. Developing your credit rating is important in life and anything that helps to improve your rating has to be seen as a positive thing. If you trust the borrower, acting as a guarantor could be a great way to improve your current credit rating.

However, if the borrower defaults on their payments, not only will you be faced with having to deal with the finance company or lending institution, this is likely to be marked against you with respect to your credit rating. This may seem harsh to some people but if you are taking on the responsibility for someone else to pay off a loan, it stands to reason that you will have to bear with many of the consequences that come with acting in this manner.

If you, as a guarantor, do not take over the payments or ensure that the balance is repaid, it will work against your own credit score in the way that any other person would suffer if they failed to keep up payments. If you don’t take responsibility for the payment, you will likely receive debt collection calls and you may even be sued for the outstanding balance. If you lose out in court, you will have a CCJ placed on to your credit report, which will have a seriously negative impact on your credit rating.

Hopefully it will not come to that, and there are many steps where this can be avoided but it is important to be aware of the full facts when agreeing to act as a guarantor. Being a guarantor can affect your credit rating, so make sure that you are prepared for this.