To get a mobile phone contract, one of the most important things that dealers scrutinize is the credit score. As the overall indicator of creditworthiness, many phone companies have a policy of locking out those with bad credit because they are high-risk parties. However, there is a way of going on this issue. The commonest method is using a guarantor.
A guarantor can only be a person with high credit score. If a friend with poor credit score approaches you to act as a guarantor, here are some crucial questions to ask.
What caused the current situation of very poor credit score to the extent of getting denied mobile contracts?
Knowing the cause of the current problem can help you understand whether you are likely to plunge into a bigger problem. For example, if your friend is a regular defaulter of even smaller loans, the chances of defaulting on the mobile phone contract are still very high.
Do you really need the phone contract you are going for?
Though your friend has approached you for assistance to act as a guarantor, you have to establish whether the new device is indeed necessary. If a person already has a working phone, it would not make sense to go for another smartphone right away. The best idea would be addressing the problem of low credit score.
What level of risk is involved in the deal?
As a high-risk party, it is very important to take some cover when acting as a guarantor. By establishing the level of risk involved, one can help to limit the losses. For example, if your friend wants the latest and most expensive smartphone costing £800, tell him you can only risk about £300. This means that he has to raise a significant amount as deposit to get the contract.
What plans do you have for repaying the current mobile phone contract?
Once a client identifies a specific guaranteed mobile phone contract, the next thing (before signing the agreement) is crafting a repayment formula. This is the plan that you should use to assess the seriousness of your friend to repay the contract. For example, the borrower should be willing to commit extra finances to clear the loan faster.
What is the contract timelines?
As a guarantor, it is advisable only to guarantee credit for a very short time. This means that your friend must have a good plan to clear the entire loan within a very short time so that you can do something else. If the contract lasts for a very long time, there is a likelihood of fatigue and a higher risk of default.
How do you plan to improve your credit score after getting the guaranteed phone contract?
The cause of your friend’s issue is poor credit. Whether it was caused by bad financial history or defaulting on other lines of credit, the effort for raising the score is very crucial. Ensure that your friend is committed to improving the credit score by following a good plan. For example, he could attack the current loans using the debt ladder or snowball strategy.
As a guarantor, you must be cognizant of the fact that the borrower can default. Therefore, you should be prepared to take up the role of clearing the loan balance in case of default.