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How does credit scoring actually work?

How does credit scoring actually work?

Credit scores have a huge influence on most of us! Whether you are renting or buying a flat or house, entering into a car finance agreement or even a mobile phone contract, credit reference agencies have a major impact on if we will or will not get accepted for finance or not. Can you think of any other area of your life which has such an impact but in reality we know so little about? Hippo Motor Finance aims to try and demystify how credit scoring works with some hints and tips as to how to find out what your score is and how to apply for, in particular, car finance without damaging your credit score.

Who are the credit reference companies?

First things first, let’s take a look at who exactly the credit reference agencies (sometimes called credit bureaus) are, how they’ve evolved and what do they do?

There are three main credit scoring agencies in the UK, namely: Experian, Equifax and Callcredit (also known as TransUnion). The largest is Experian which established its own identity in 1996, is based in Dublin but also has a headquarters in London. Equifax is the oldest and started way back in 1899 and is the second largest of the three by turnover, based in Atlanta, Georgia. Finally, Callcredit was founded in 1968 and is the smallest of what makes up Big Three of the credit scoring world.

How do credit score companies work?

What do these credit bureaus do? Think of them like massive data warehouses.

They provide credit history information to companies on individuals and businesses and how they have performed financially over time and charge these companies for the privilege. They don’t actually say if you are creditworthy or not, that is for the company to decide themselves but they do provide a score based on your history and your creditworthiness at that point in time which the companies can use to decide if you are likely to pay them back or honour a commitment.

They don’t share information with each other (except perhaps fraud data) and the information they hold on you can come from a variety of sources including the same companies asking for your information or the likes of credit card issuers and banks. They all have different scoring mechanisms and because their sources of information are not the same, they have different gauges of your credit status. Because they have different scales, unfortunately, it’s also not possible to compare scores like for like but while the scores may differ from each other they are generally aligned and allow companies using them to set a threshold below which they are unlikely to grant credit or use the score to decide what APR they will offer you.

Some lenders use all three bureaus while others use only one (normally for cost-saving purposes) but unless a company has devised their own scoring methodology (very rare) your score is likely to be supplied by at least one of these institutions when applying for credit.

How do I find out my credit score?

If you want to know what your credit score is there are a number of ways of going about this.

The credit scoring landscape is ever changing and there have been a number of recent developments. Historically you would have had to apply directly to the bureaus themselves, ask for and pay for your credit report. Most now offer a service whereby you pay a monthly fee and in return, you get a comprehensive credit report.

A more recent development is the rise of technology companies like ClearScore or Credit Kudos. ClearScore, now owned by Experian, offer you a free monthly credit report. That’s right – it’s free! Why would they do this? Because in return for being free they offer you optional access to deals on things like credit cards or personal loans. It’s a win-win deal as it allows you to follow your credit score and in return, they hope to supply you with relevant financial services offers.

You can still go through the normal channels of finding out your score or challenging your score, in which case you could contact the credit reference agencies directly.

Will car finance affect my credit score?

So, at the end of the day, you want to finance a car – what’s the best way to do it? We have a separate article on the different forms of finance available here but, assuming you have decided which one is best for you, what impact are credit scores likely to have on your ability to gain finance?

The first point is a friendly warning: if you don’t have a great credit score then you should be very wary of applying to loads of different brokers or lenders – especially where they may have a ‘hard’ credit search in place. A hard search is one that will leave a ‘footprint’ on your file and having a number of these in a short period of time is very likely to negatively affect your score.

It’s better to use a broker or lender that offers ‘soft’ search which won’t affect your credit rating. Hippo Motor Finance’s Instant Car Finance Check service offers the solution to both the number of searches you make as well as ensuring these have no impact on your credit score. We have a proven panel of 14 lenders and we only use soft search in the first instance which means you get all the choice from having a large panel of lenders but avoid the risk of damaging hard searches as well as having the benefit of a result within 60 seconds!

Done right, credit applications are nothing to fear, but when done badly by brokers and lenders, who don’t have your interests at heart, it can create problems. Stick to proven companies which have a track record who have soft search in place with some serious choice in lenders and you can’t go wrong!

Apply for vehicle finance today by using our Instant Car Finance Check tool or by calling Hippo Motor Finance on 01254 956 777 to discuss your requirements in detail.

Representative Example of Credit

We expect more than 51% of our customers to achieve this rate.

Loan Amount Total Cost of Credit Representative APR 60 Monthly Payments Deposit Amount Loan Term Total Amount Payable
£7,500 £3831 19.1% APR £188.85 £0 60 Months £11,331

All offers are subject to change at any time, you must be 18 or over and finance is subject to status, vehicle availability and terms and conditions apply. We can introduce you to a limited number of finance companies, a commission may be received. Failure to maintain payments may result in termination of your agreement and the vehicle being returned, this could affect your credit rating and make it more difficult to obtain credit in the future. All prices correct at time of publication.

We purchase a wide variety of vehicles from all over the country to ensure the best quality and value for our customers, all of our cars go through a thorough inspection process and if they do not meet our standards we do not sell them. We endeavour to inform our customers (where possible) the provenance of the vehicle they are buying and as such we will always inform you if the vehicle has previously been either an ex fleet or hire car. Should your vehicle be an ex hire/fleet car please do not be concerned as we would never value this vehicle differently when you come to part exchange it and there is no difference to the CAP valuation either.

You should try and estimate the distance you will travel as accurately as possible to try and avoid excess mileage charges at the end of your contract.

All pictures and/or photos and car descriptions on this site are for illustration and reference purposes only and are not necessarily the vehicle on offer. All offers are subject to change at any time and are subject to finance approval and vehicle availability. All prices correct at time of publication. E & OE.

Hippo Vehicle Solutions t/a Hippo Motor Finance is authorised and regulated by the Financial Conduct Authority. FRN 658076. We are a Credit Broker not a Lender and can introduce you to a limited number of lenders. Subject to status and to UK residents only (excl. the Channel Islands). Individuals must be 18 or over. Guarantees and indemnities may be required. We typically receive a fixed commission calculated by reference to the vehicle model, product or amount you borrow, for introducing you to a lender but this does not affect the interest charged on the agreement, all of which are set by the lender. Images for illustrative purposes only. Hippo Vehicle Solutions t/a Hippo Motor Finance is an Appointed Representative of AutoProtect (MBI) Limited for insurance distribution purposes. AutoProtect (MBI) Limited is authorised and regulated by the Financial Conduct Authority. Its firm reference number is 312143. You can check this at

We endeavour to ensure that all information including the specifications and finance availability are accurate. Whilst we make every effort to display correct information we are aware that errors may occur occasionally. We are not able, therefore, to guarantee the accuracy of all information especially when given to us by third parties. If you do require clarification of some information you have seen on our website, please email us at . This does not affect your statutory rights.

We are a broker not a lender and our registered office is Unit 26 Trident Park, Trident Way, Blackburn, BB13NU.