What Is a Guarantor and When Do You Need One?

When it comes to renting your own flat, lenders and landlords may ask for a guarantor. But what is a guarantor, and when do you need one? 

In this blog, the Pave team will answer these questions, including who can be a guarantor, why they're needed, and what you can do if you can’t find a guarantor. If you’re renting for the first time, or will be soon, keep reading to be prepared if you’re asked for a guarantor. Let’s get into it!

What Is a Guarantor?

A guarantor is a person who’s responsible for your rental payments if you don’t pay them. Having a guarantor is incredibly common, and almost everyone needs to use a guarantor at least once. Guarantors can be also used for loans, mortgages, and other lines of credit, but they’re most commonly used if you’re renting a flat for the first time or otherwise have low credit. 

What’s the Difference Between a Guarantor and a Reference?

References are used by landlords to learn more about you when you apply for a unit. Common references that landlords will check include:

• Your bank
• Your employer
• Prior landlords
• Credit reference agencies
• Electoral Roll

References are primarily used to confirm the information on your application, ensuring that you are who you say you are, and to verify that you can make the rental payments. 

Guarantors, on the other hand, are primarily responsible for your rent if you fall into arrears. The landlord may request references from your guarantor to ensure they can follow through with any necessary payments.

When Do You Need a Guarantor?

Guarantors are typically needed if you have a thin credit file, poor credit, or are considered low income. It’s very normal to need a guarantor when applying for a flat if you are:

• Moving into your own flat for the first time, or otherwise have no credit or low credit
• Unemployed, and sometimes if you’re self employed
• New to the UK

Who Can Be Your Guarantor?

A guarantor can be anyone over the age of 18 with a good credit rating and regular income. Parents and close relatives frequently act as guarantors, but almost anyone can be your guarantor as long as they are willing to sign legal documents and be responsible for payments if you fail to make them.

Guarantors are usually required to provide their address, their employer, and their income. They’ll also need to submit bank statements proving that they are financially stable, and may have a credit check performed as well. Additionally, guarantors are typically required to live in the UK, as landlords have less legal recourse if a guarantor doesn’t live in the UK.

Regardless of who you ask to be your guarantor, it’s essential that you ensure they are fully aware of the extent of their commitment. Some things to keep in mind as you ask someone to be your guarantor are that they will be responsible for:

• The entire rent even if you are living in a shared flat. This means it’s essential your guarantor not only trusts you, but also trusts your flatmates
• Rental arrears for the full duration of the rental agreement, so they are responsible for much more than just a rental deposit
• Every cost associated with your tenancy, including utilities, taxes, and damages or repairs

What if You Can’t Find a Guarantor?

Everyone’s life is different, and many people don’t share the same circumstances. Where many simply turn to their parents or family when they need a guarantor, some may not have that option. Fortunately, there are still options available even if you can’t find a guarantor.

Depending on the landlord, you may be able to avoid using a guarantor by paying a larger deposit, or by offering to pay several months of rent upfront.

If you are struggling financially, or simply can’t afford those options, your local council may be able to help you secure housing without a guarantor.

Additionally, if you’re a student, you might be able to turn to your university for help. They may be able to provide information on local landlords or letting agents that don’t require guarantors, or connect you with financial support services through the university.

Does Being a Guarantor Affect Your Credit Score?

If you’re a guarantor or cosigner, your credit score can be affected. As a guarantor, you’re responsible for any rent, utilities or taxes, or repairs that the renter can’t pay. Because you’re guaranteeing these things will be paid, your credit score can be impacted if they aren’t.

If you’re in a situation where you need to cover those costs, you may have the cash to do so without impacting your credit score. However, if money is tight, covering those expenses could damage your score. Here’s how that might happen:

• You miss a payment: Your payment history is the most important factor influencing your credit score. If you miss a payment, it will hurt your credit score and be recorded in your credit report for six years.
• You use a larger percentage of your credit limit: While you can use your entire credit limit, using more than 25% signals to lenders that you’re at a higher risk for missing payments. This can impact your credit score and your eligibility for new lines of credit.
• You take on debt: If you need to take out a personal loan or use your overdraft to cover payments, you could increase your debt-to-income ratio (DTI) — the amount of your income that’s spent paying for debts. Ideally, your debt-to-income ratio should be below 35%. When your DTI is higher — like if you have to take on debt to meet your responsibility as a guarantor — you’ll also be seen as a more risky borrower. This is because if your income were disrupted, your lenders might not receive payments.

What to Consider Before Agreeing to be a Guarantor

If you’re asked to be a guarantor, the odds are you know the person asking you rather well. They may be a family member, friend, or possibly a coworker. Regardless of who they are, you’ll want to take steps to ensure you’re on the same page as them about what the agreement means.

Take the time to discuss the following critical points before agreeing to be their guarantor:

• What are their incomes and expenses? You’ll want to assess how much they’re making and what their additional obligations are each month. Do they have car finance, personal loans, or other forms of credit they need to keep up with? Does their income provide enough to cover these expenses?
• Do they have an emergency fund? If their income is interrupted, will they be able to cover costs temporarily? If they don’t have an emergency fund, consider asking them to create a plan to build one.
• What are your expectations for communication? As a guarantor, you’d never hope for the lessee to miss payments or be unable to make them. However, you’ll never regret having a plan in place if they aren’t able to make their payments. Discuss how and when they should notify you. This can help you both reduce or avoid the impacts that missed payments can have.

Finally, only be a guarantor for someone you truly trust. It can be hard to say no to people who are asking for your help, especially when you have a close relationship with them. However, take the opportunity to explain why you’re hesitant to be their guarantor so they have useful feedback they can work to improve.

Get Started Building Credit With Pave

Needing a guarantor often comes at a very exciting point in your life. Moving into your own flat can be a very affirming experience, and using a guarantor helps make the process easier.

As you become increasingly independent, your credit becomes more and more important, but it can be difficult to start building it. That’s why we designed the Pave app. Pave helps people with no credit and low credit build healthy credit scores the right way.

Through active credit building like reporting your membership to credit reference agencies, bills monitoring to help you avoid missing payments, and personalised credit fixes, we make credit building easier than it’s ever been.

To see why hundreds of thousands of people across the UK have already joined the Pave community, download the Pave app from the App Store or Google Play today!

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