Your credit history is a reflection of your recent past. When you borrow money from a bank or a lending institution, your credit history must show that you are creditworthy. Lenders require a new business or an individual with inadequate credit history to provide a guarantor. A guarantor signature obligates another person on the loan and increases your chances of getting financing.
A business loan often requires a guarantor signature. An individual who owns a business may sign both as owner and in his individual capacity, making him personally obligated to pay the loan if the business defaults. You may borrow money individually with your spouse signing as a guarantor or you and your spouse may be joint applicants. A joint applicant is equally responsible for the payment of the loan, while a guarantor signatory is responsible only if the borrower defaults.
Requiring a Guarantor
The Equal Credit Opportunity Act has specific regulations in place to avoid discrimination. If you are creditworthy by the lending institution’s standards, the lending institution can’t require a guarantor signature or a spouse’s signature on a credit instrument -- unless an exception applies. Exceptions might apply to secured or non-secured loans and community or non-community property.
With unsecured credit, such as an application for a credit card, lenders may consider your income and assets in determining creditworthiness. If you own assets together with your spouse, your spouse’s signature might be required as guarantor or co-applicant, especially if your permanent legal home is in a community property state. The lender wants access to your assets in case of default, and access might require your spouse's signature. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Although federal laws protect your rights on guarantor signatures and joint applicants, state laws determine community property and access to jointly owned properties.
If you alone don’t have credit to qualify for a loan, the lender can require a guarantor signature or collateral held as security for the loan. With secured credit, you borrow with an item held as security. If the loan amount isn’t paid, the lender takes the collateral as payment. Real property is often collateral for a home loan; an automobile provides collateral for a car loan. The lender can’t require that the guarantor be your spouse unless access to the collateral requires the spouse’s signature. A lender can require a spouse’s signature as the guarantor for secured credit if it is essential to make the security available to pay the debt.
Another Use in Canada
Canadian passports have guarantor signatures to verify passport photos and passport applicants. A parent or legal guardian can’t be the guarantor. The guarantor signatories for passports are often professionals who know the passport applicants. The guarantor signatory can’t charge for this service, but he verifies the photo and applicant’s name.
Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.