How Will a Timeshare Foreclosure Affect My Credit Score?

Timeshares can be a burden. If you're paying a monthly mortgage payment for a place that you hardly ever use, plus sky-high annual maintenance fees, you might be thinking about letting your deeded timeshare go into foreclosure.

Before you do this, consider what the foreclosure could do to your credit scores. A timeshare foreclosure, like a residential foreclosure, could potentially cause a hit to your credit.

What Is a Timeshare?

A "timeshare" is a form of shared property ownership where multiple owners get to use the property for a specified period each year. Timeshares generally come in two basic types: "deeded" and "right to use." Another type of timeshare arrangement is a "vacation club" or "vacation plan."

This article focuses on deeded timeshares. If you take out a loan to purchase a deeded interest in a timeshare and fail to make your timeshare mortgage payments or fail to keep up with the assessments, you could face a foreclosure.

How Timeshare Foreclosures Work

A timeshare foreclosure is like a residential foreclosure: It will be either judicial or nonjudicial, and eventually, the property will be sold at a foreclosure sale to the highest bidder. And, like a residential foreclosure, a timeshare foreclosure could potentially show up on your credit history and have an impact on your credit scores.

While not every timeshare developer reports payments, including missed payments, or foreclosures to the credit reporting bureaus, foreclosures are part of the public record, and the credit reporting bureaus often search public records for information such as foreclosures. If the bureaus learn about a timeshare foreclosure, the foreclosure usually goes in your credit files.

In some cases, defaulting on your timeshare mortgage and going through a foreclosure could be damaging to your credit scores, much like defaulting on your home mortgage and going through a foreclosure.

Foreclosure Lowers Your Credit Scores

FICO credit scores, the most common type of credit scores, have a 300–850 range. In general, a foreclosure will drop your FICO credit scores at least 100 points, probably more. Past-due reports for missing your payments can also drop your scores, assuming the timeshare lender or developer tells the credit bureaus about them.

The actual drop in credit scores can vary from one borrower to the next. The hit is more severe if you had very high credit scores before the foreclosure action. If you already have low credit scores, you'll see less of an impact.

A Lower Credit Score Affects Your Ability to Get Credit

A timeshare foreclosure won't ruin your credit scores forever, but it could possibly have an impact on your ability to obtain another mortgage for, perhaps, up to seven years.

You might also face future loan denials or higher interest rates if you apply for other forms of credit, like a car loan or credit card. Lenders don't like to give loans to people who haven't paid off their debts in the past.

So, a timeshare foreclosure might result in a higher rate of interest than the prevailing market rates or could result in you being denied credit in some circumstances. In some cases, if your credit is bad enough, a credit card company might cut your credit line or close your existing account.

Improve Your Score By Remaining Current on Other Debts

A foreclosure entry appears on a credit report for seven years, but its impact on your FICO score will decrease as time passes. If your timeshare gets foreclosed, be sure to stay up-to-date on your other debts. By remaining current on other debts, your FICO scores can start to recover more quickly.

Avoid Credit Repair Scams

If you find a company that claims it can repair your credit following a timeshare foreclosure (or home foreclosure), it very likely is a scam. You can't legally remove accurate information from your credit report until it becomes outdated.

Even if the information is outdated, companies that claim they can do this aren't telling you the full story. In many instances, credit repair companies simply write a letter to credit report agencies disputing any errors and outdated information, which is something you can easily do yourself.

Getting Rid of a Timeshare

You might be able to get rid of a timeshare without going through foreclosure. A few of the various options to avoid a timeshare foreclosure include:

• selling the timeshare
• donating the timeshare to a charity (though not many charities will take a timeshare), and
• working out a deal to give the timeshare back to the resort (called a "deed in lieu of foreclosure" or "deedback").

However, be aware that once you own a timeshare, you'll probably have trouble disposing of it. Several of these alternatives, like selling or donating the timeshare or completing a deedback, are very difficult to complete or are at the option of the developer.

You'll probably have better luck working out a settlement, possibly with help from an attorney.

Talk to an Attorney

If you're facing foreclosure of your timeshare property, consider talking to a qualified attorney who can advise you about what to do in your circumstances and inform you about applicable timeshare laws.