If you’re thinking about a guarantor loan, your credit score might have suffered a few knocks in the past. But how will a guarantor loan affect your credit future?
Guarantor loans are often a handy alternative for people who may be refused finance elsewhere. The extra safety net of a guarantor can mean you’re more likely to be accepted, as lenders are more confident they’ll receive their repayments.
If you’ve been refused finance from mainstream lenders, it’s likely that your credit score isn’t in perfect shape. Can a guarantor loan turn your situation around?
How will a guarantor loan look on my credit report?
A guarantor loan will appear like any other credit account on your report. If you’ve made your loan payments on time, your report will show positive markers under your payment history. This can improve your credit eligibility, as lenders can see you’re capable of handling debt.
Just like any other loan, missing payments towards your guarantor loan will count against your credit score. The missed payments will appear as negative markers and the lender will request that your guarantor repays the loan instead. And if your guarantor misses the payments, their credit score will also take a hit.
Will a guarantor loan help my credit score?
If your credit score is a little worse for wear, it can be hard to find finance you’re eligible for. And since using finance responsibly is a key part of building your credit score, it can sometimes feel like improving a bad credit score is designed to be difficult.
Thankfully, guarantor loans are suitable for people with less than perfect credit scores. Keep up with your guarantor loan repayments and your credit score should start to improve.
If you’ve missed payments in the past, they’ll remain on your credit report for other lenders to see for up to 6 years. However, if you can prove you can stick to more recent financial commitments, you could see your credit score start to improve.
The key is sticking to your payments over a longer period of time. Lenders like to see that you can handle debt consistently – not just on a handful of occasions. As guarantor loans can be lengthy commitments, meeting all of your guarantor payments on time can help boost your credit score.
Will a guarantor loan help if I have no credit history?
Having no credit history means you’ve never borrowed any money. This can make it tricky to apply for finance for the first time, as lenders can’t see how reliable you are with money.
A guarantor loan can help. As your guarantor will repay your loan if you can’t, the lender will focus on their credit score in more detail – instead of yours. A guarantor is typically someone with a good credit score, which means the lender won’t mind if your credit score is thin or non-existent.
Can a guarantor loan damage my credit score?
It all depends on two things: the amount of debt you have and the way you repay your guarantor loan.
If you’re currently juggling a lot of other debts, taking out a guarantor loan might not be good for your credit score. That’s because a high credit utilisation (the amount of credit you’re using) can suggest you’re relying on credit to make ends meet. If that’s the case, lenders might worry you could miss payments.
However, if you’re not paying off lots of debt, taking out a guarantor loan can slowly improve your credit score. It’s important to remember that this is only the case if you make your repayments on time. A handy way to ensure you meet your repayments is to set up a Direct Debit – this means your bank will automatically pay off your debt on time, every month.