Expert: Regan Shinski - 10/12/2009

Question
About four years ago, my sister went to get a car but was told she didn't have any credit history.  The dealer proposed that I get the car in my name for her and that after about 6 months of my sister making the payments, we could go back to them and the 6 consecutive, on time payments would be enough to establish a credit history for her.  At that time, they would use her newly established credit history to finance a loan for her, at which point I suppose I would sell the car to her.  Not knowing any better, I agreed and my sister got the car.  Six months later when we were supposed to switch the car over, the dealership gave us the run around, After a year, same run around, and after two years same thing.  My sister and I just stop trying.  She's just continued to pay for the car.  The problem now is, every time I try to do something for myself, with my own credit, I get turned down for having too high of a debt to income ratio.  It always comes back that, in addition to my own car payments, and student loan payments, I also have an additional car (hers) on my credit and so I can't do anything.  I mentioned to my sister about getting her own loan for the car, but since this all started my sister, without my knowledge, went and did what I did for her for someone else, so now she has a car on her credit that's not hers and I am assuming that's the hold up in her getting her own loan for the car she's driving (in my name).  Do you have any advice as to how I can get out of this situation so I can use my own credit for what I need to do?  Not sure if it makes much of a difference but she lives in Illinois and I am in Michigan.
Any advise is greatly appreciated.

Thank you.  

Answer
Hello Meye:

You did not send this question to me.  It was sent to the question pool, so I'm sorry if there was a delay but I thought I would weigh in if no one else has answered it for you yet.

Unfortunately, you have few options.  The obvious options are to pay it off, re-finance it, or sell the car and pay it off.  Sounds like you explored these options without much success but short of those, there is no way to directly eliminate your credit obligation.  Obviously, letting the car be repossessed will do more harm than just having a high debt to income ratio.

There are some things you can do to mitigate the debt in the eyes of other creditors.  Again, none will eliminate your legal option to the debt or guarantee other credit approval, but they might help.  You never know.

First, whenever you apply for credit, you should list the car payment your sister is making as income for you.  That will help your debt to income a little bit.

Secondly, you can place a letter of explanation in your credit files.  This letter will be sent, along with your credit reports to anyone that pulls your credit.  Explain the situation in it's entirety.  It won't change your credit score and most creditors may just overlook it, but it may help with some.  Send the letters directly to the credit bureaus - Experian, Equifax, and Transunion.

Thirdly, you can try and get a signature or other loan to pay it off.  Credit to PAY OFF other credit is different and easier to get than ADDITIONAL NEW credit.  You will still have the debt showing on your credit reports, but you might be able to get better terms.  Say your sister's car payment is $300 per month for the next two years.  Maybe you can get a title or signature loan with terms of $150 for five years - or whatever.  Just something to reduce the monthly payment and give you better a debt to income ratio.  You should still have your sister pay the full amount which you should apply to this loan to pay it off faster.

I wish I had better options for you but these are the only things I can think of short of paying it off somehow.

Good luck,
Regan
mbscompany@aim.com