When you put a significant down payment on your credit card, it can definitely send a ripple through your credit score, primarily because of something called “credit utilization.” This refers to how much of your available credit you’re currently using. If you have a $10,000 credit limit and suddenly put a $3,000 down payment on it, your utilization jumps to 30%. Financial experts generally advise keeping your credit utilization below 30% to maintain a healthy credit score.
Also read: Do Car Dealers Take Credit Cards for Down Payment? 5 Shocking Facts That Could Save (or Cost) You $1000s
A sudden, large increase in utilization can cause your score to drop temporarily. This might be particularly problematic if you’re applying for the car loan around the same time, as a lower score could impact the interest rate you’re offered. The good news is that if you pay off the balance quickly, your credit score should rebound. The key is timely payment. If that large down payment sits on your card for months, accruing interest and keeping your utilization high, the negative impact on your score will be more prolonged. So, plan your payment strategy carefully!
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