How Does Being a Loan Guarantor Can Affect Your CIBIL Score

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How Does Being A Loan Guarantor Affect Your Credit Score?_WC

4 min 13 Mar 2024

Highlights:

Who is a Loan Guarantor?
Impact of Being a Loan Guarantor on Credit Score
What to Consider Before Becoming a Guarantor?

Becoming a loan guarantor is an important decision that can assist someone in achieving their dream of owning a home, such as by helping them in securing a housing loan. One of the determinants of Home Loan eligibility is the borrower’s credit score.

The credit score is a three-digit number between 300 and 900 that indicates a borrower’s creditworthiness and repayment capacity. The higher a borrower’s credit score, the better their repayment capacity. The ideal credit score to avail of a Home Loan on favourable terms is 750 or above. Thus, if the borrower's credit score is low, they can increase their chances of loan approval by adding a guarantor to the loan application.

However, if you are planning to become a guarantor, it is important to understand the role and responsibilities involved to ensure a smooth experience for both you and the primary borrower.

Also Read: Tips to Maintain Your Business CIBIL Score Above 700

Who is a Loan Guarantor?

A loan guarantor is an individual who agrees to take responsibility for loan repayment if the primary borrower is unable to meet their obligations. This role requires a strong financial standing and a good credit score. By becoming a guarantor, you provide lenders with an additional layer of assurance, increasing the primary borrower's chances of loan approval.

How Does Being a Loan Guarantor Affect Your Credit Score?

Your credit score is affected only if the primary borrower misses their EMI payments. When payments are made on time, your credit score remains unaffected, and your role as a guarantor serves its purpose without any impact. However, if the borrower faces difficulties, stepping in to cover the missed payments will protect your credit score and help the borrower get back on track.

Considerations for Becoming a Guarantor

Being a guarantor is a supportive role, however, it is essential to consider your financial situation and the primary borrower's reliability such as their ability to make timely housing loan repayments, before committing. Understanding these factors will help you make an informed decision, ensuring that you can provide assistance without compromising your financial well-being.

Conclusion

Becoming a loan guarantor can help the primary borrower in their financial journey. By being aware of your responsibilities and the impact on your credit score, you can provide meaningful support while safeguarding your own financial health.

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