How Does Being a Guarantor Affect Credit?

Your Credit Report

Guaranteeing a loan or credit card account for someone else has an effect on your credit report because you are taking responsibility for the account. When you co-sign to guarantee someone else's loan or account, you are agreeing to be 100 percent responsible for paying the debt if he defaults on the payments. Therefore, it will show up on your credit report just like any other account for which you are liable and will reflect the current status of the account and the payment history, whether it's positive or negative.

Positive Effects

If the person for whom you guaranteed the loan or credit card pays it as agreed, it will have a positive effect on your credit report, as well as on his. The account will show as "current," with an on-time payment history. Accounts that are being paid as agreed help to maintain a good credit score because they demonstrate financial responsibility, whether it's your own account or one that you have guaranteed.

Negative Effects

If the person for whom you guaranteed a loan or credit card defaults on the account, it will have a negative effect on your credit. When you co-sign, you are considered to be 100 percent responsible for the loan, even if you did not receive any of the money or never used the credit card in question. If you do not take over the payments or pay off the amount owed, it will count against your credit score in the same way that any other delinquent account would. You will also most likely receive collection calls if you don't make the payments, and you can be sued for the loan. If you lose in court, you'll have a judgment on your credit report which will bring down your credit score significantly. The creditor can even garnish your wages to get repayment.