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I am looking to finance a new car purchase. The total cost of the car comes out to $18k, and I am able to put up to $10k down. Assuming that my goal is to maximize my credit score in the long run, would it be beneficial to put less down, so that the financed amount is larger? I know that higher credit limit on credit cards generally reflects positively on a credit score; does the same logic apply to auto loans, i.e. higher installment payment = higher credit score?

My goal here is to maximize my credit score, even if it comes at the cost of "wasting" money, so assume for the purposes of this question that the financing is done at 0% APR, and any portion of the $10k that does not get put towards the downpayment does not earn any gains in a savings/trading account.

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  • I took a loan for the whole sum then immediately paid off 2/3rds of it. That seemed to get me the best credit boost. But make sure to get a loan which allows that easily and with no fees.
    – Vality
    Commented May 20, 2019 at 21:00

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Higher credit card limits on their own do not reflect positively on your credit score - what is important is your utilisation. Having 10% utilisation on a 10k credit card will be more favorable to a credit score than a 50% utilisation on a 100k credit score. Debt-to-income ratio also plays a role here.

Instalment loans are a bit different here because the instalment amount is like your credit limit and your outstanding balance is your "utilisation". Therefore having a larger loan is unlikely to improve your credit score much because you'll still have a high "utilisation," and an even higher debt-to-income ratio.

You say you care about your credit score in the long term. In the long term what counts towards your credit score the most is payment history, average age of accounts and utilisation, so whether you put down 5k or 10k is hardly going to matter in several years time. Don't spend more money in interest just in the hopes of getting a better score 10 years in the future.

As an experiment to see what happens to your credit score in the short term, you could put down 5k on the car (assuming the same interest rate as if you put down 10k) and then put the other 5k towards it after a month.

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  • Seems like if one has a credit card, then adding a car loan increases utilization, and the larger the loan, the more the increase. Unused $5k credit limit + $5k car loan = 50% utilization. Unused $5k credit limit + $10k car loan = 66% utlitization.
    – Acccumulation
    Commented May 19, 2019 at 3:33
  • @Acccumulation: But unused 5k limit + 10k loan paid down to 5k = 33% utilization, right? Or in this case, 13k loan paid down to 8k (as compared to 8k loan still having a balance of 8k)
    – Ben Voigt
    Commented May 19, 2019 at 5:50

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