Does a Down Payment on a Car Improve a Credit Score?

A down payment on a car does nothing to improve a credit score -- but paying more money down on the car could make credit approval easier. Down payments are usually necessary on automobile loans for several reasons, including reducing the monthly payments to an affordable level for the buyer's income and other credit obligations. Down payments also represent an investment by the buyer. Theoretically, a buyer is less likely to stop making payments and allow repossession of the vehicle after making a significant down payment. Credit score is important as well, but building a good score takes time and discipline.

Scores

Credit scores are three-digit numbers ranging from 300 to 850. Scores of 720 or higher are great, and scores below 620 are poor. People with high credit scores may easily qualify for approval on automobile loans and receive the lowest interest rates. Some people with excellent credit purchase new cars with no money down. But people with poor credit scores must usually make significant down payments and accept high interest rates.

Prime Borrowers

Edmunds.com reported in 2011 that people with credit scores below 620 must usually make a down payment of at least 20 percent. That means a buyer would pay $5,000 down on a car that sells for $20,000. However, so-called "prime borrowers" with credit scores between 680 and 739 and "super prime borrowers" with scores above 740 qualify for special low financing occasionally available through dealers. This financing is often lower than interest rates offered by banks or credit unions.

Challenges

Some car buyers with poor credit scores try to find quick ways to improve their credit so that they can qualify for better terms on financing. This is sometimes possible by removing inaccurate information from credit reports, such as credit card accounts that appear to be open or past due, even when the debtor paid them off months ago. It's a good idea to order a credit report from a company such as AnnualCreditReport.com. The site offers fee reports under the terms of the Fair Credit Reporting Act. The company also offers instructions for disputing inaccurate information.

Statistics

Edmunds reports that the average credit score for a new car buyer is 769, while the average for a used car buyer is 683. However, depending on the lender, it's possible to purchase a car with virtually any credit score. The larger the down payment, the better the chances someone with poor credit will be able to get financing. People who must make large down payments because of their credit should consider buying a used car for cash, or financing it. It usually takes two to three years to significantly improve credit scores by paying all bills on time while keeping balances low.