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Why this personal finance blogger regrets using a credit card to make the down payment on her first car

CNBC Select spoke with Jordanne Wells of Wise Money Women about the four lessons she learned after using a credit card to help buy a car.

Photo courtesy of Jordanne Wells, Wise Money Women

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Jordanne Wells estimates that she probably had close to eight credit cards by the time she graduated college from Ohio Wesleyan University — and a whole lot of debt.

Unfortunately, at the time, she didn't know that carrying a balance on her cards was hurting her credit score until she went to buy her first car in 2007: a used 2001 Honda Civic EX. It was then that she learned her score sat in the low 600s.

With only an average credit score and not much money in her wallet, she called her father in Jamaica to see if he could assist.

With her dad's help, she charged the $1,500 down payment onto his credit card and took out a loan to cover the rest of the purchase. But Wells, who today runs a personal finance blog for millennial women called Wise Money Women, wouldn't recommend others to follow in her footsteps.

Below, CNBC Select hears from Wells on the four lessons she learned from using a credit card to help buy a car.

1. It's a 'double whammy'

Wells says charging a down payment for a car onto a credit card is a "double whammy."

"Not only do you have to make a payment on a car, but now you also have to make this double-digit interest payment on the credit card as well," she says.

While Wells took care of paying the car payments each month, she also felt obligated to help her dad pay off the $1,500 charge on his card. Unfortunately, the balance racked up high interest charges since they couldn't afford to pay it all off at once.

"Unless you have the money readily available to pay off [the card] immediately, don't do it," she says.

2. You could be taken advantage of

In Wells' experience, she says car dealerships often make it really easy for you to use your credit card but don't be fooled by it. 

"They will always tell you, 'No problem, it's not a big deal," she says. "But, yeah, having to pay a high interest rate on your credit card is a big deal."

Having immigrated to the U.S. from Jamaica by herself at 17, Wells also wasn't aware of the varying interest rates you can be charged. When she was offered an 11% interest rate on her car loan, she thought that was normal.

"I thought that was great," Wells says. "Then six months later, I overheard my coworker say that she got her car for 0% interest."

3. Your credit will likely take a hit

When you use your credit card to pay for anything, you are adding to your credit utilization rate. The general rule of thumb is to not use more than 30% of your credit limit, but putting a big down payment for something like a car can easily make your utilization rate jump.

If you don't pay that big car purchase off immediately, this higher utilization rate will ding your credit score and a lower credit score could mean that you end up being charged more for auto insurance.

Of course, any payment activity — whether it's on your credit card or your car loan — gets factored into your overall credit history. If you're ever late on these payments, or worse you miss them entirely, your credit score will drop.

4. Consider using a card with big rewards (only if you can pay it off)

Wells' father didn't earn any rewards when he charged the down payment onto his credit card, but she points out that this would be the only scenario where it would make sense — if you can pay the balance off immediately.

Some of the best cards, including the American Express® Gold Card, the Chase Sapphire Reserve® and the Capital One Venture Rewards Credit Card (see rates and fees), have generous welcome bonus offers that come with high spending requirements. Charging a big expense, like the down payment on a car, can help you easily meet that spending threshold to earn the rewards. But "don't do it unless you're paying it off right away," Wells says, because the value of the rewards doesn't offset the additional interest charges you'll face if you carry a balance month to month.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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