A consumer was turned down for a loan based on their credit score (we have a matrix that officers use). They went to the president of the bank who did the loan but with a guarantor. He used the applicants credit score for the interest rate and not the guarantors which would have resulted in a better rate. I say we had to use the guarantors...

This should be written in your loan policy. We just went through a compliance exam and had to add a lot to ours for clarification and so all lenders were using the same guidelines. Here - we would use the borrowers. If it's a joint application we use the higher of the two scores.

We mentioned this last week and stated if we did this type of loan then we had to update our loan policy. Of course, he did it anyways without changing it first. Didn't know if we had to use highest score. If we stated in the policy that the borrowers credit score would be used, then it is ok? Even if the interest rate would be higher?

As long as you treat everyone the same - that's the key.

Your bank sets a consistent policy that everyone follows. It should define whether or not a guarantor is considered for interest an applicant or not. It should also determine (like mentioned) if it is (among other criteria)
HIGHEST SCORE
LOWEST SCORE
AVERAGE SCORE
FIRST SCORE -

then stick to it. Deviation from policy is a 4 letter word.

Thanks!