As we all know for the sake of security of the loan amount issued, financial institutions may ask for guarantee from the borrower. Some of us think signing a guarantee document is mere a formality but it is very important for you to understand how signing a guarantee document for someone can impact your credit score or history.
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We must always help our friends and relatives at the time of need. But it is equally important for you to know the impact of your favour on your financials.
Lets understand the same with the help of an example, Raghav 30 years old well established software engineer planned to buy a property in Gurgaon. For that he applied home loan in a reputed bank in Delhi with all the requisites to complete the bank formalities.
Bank refuses to grant loan to Raghav based on his credit score from CIBIL. Raghav was shocked as he always been vigilant towards his financial transaction which never made him default on any of the credit payments. As per common belief if we are paying all out payments which includes credit card, EMIs etc on time then our credit score should be positive. The same happened with Raghav.
Initially he reminded of the article he read about the inaccurate credit reports but after investigation he get to know the main reason behind the non sanctioning of his loan request was the guarantee he gave for one of his friend.
Default in EMIs of the loan taken by his friend guaranteed by Raghav impacted the credit history of the Raghav too. As signing guarantee papers means you are liable to pay the amount if the borrower will not be able to make the payment on time. Hence Raghav was defaulter of the payment against which he has given guarantee to the lender.
So the conclusion of the complete story is- it is always better to know the impact of your actions on your future beforehand. In the above story Raghav’s friend got his loan sanctioned on the guarantee of Raghav because of the good credit score but non payment of loan amount on time by raghav’s friend negatively impacted Raghav’s credit score too.