Timeshares can be a burden. If you are paying a monthly mortgage payment for a place that you hardly ever use, as well as sky-high annual maintenance fees, you might be thinking about letting your timeshare go into foreclosure. Before you do this, you should consider what the foreclosure could do to your credit score.
A timeshare foreclosure, like a residential foreclosure, will usually cause a major hit to your credit score. Read on to find out more about how detrimental a timeshare foreclosure is to your score and how it will affect your ability to obtain future credit.
A timeshare is a form of shared property ownership where multiple owners get to use the property for a specified period each year.
If you take out a loan to purchase an interest in a timeshare and fail to make your timeshare mortgage payments or keep up with the assessments, you will likely face foreclosure. In addition to monthly mortgage payments, timeshare owners are ordinarily responsible for maintenance fees, special assessments, utilities, and taxes, collectively referred to as “assessments.” (Find out more in Nolo’s article Can a Timeshare Be Foreclosed for Nonpayment of Fees or Assessments?)
A timeshare foreclosure is like a residential foreclosure in that it will be either judicial or nonjudicial, and eventually the property will be sold at a foreclosure sale to the highest bidder. (To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see our Judicial v. Nonjudicial Foreclosure topic area.)
Like a residential foreclosure, a timeshare foreclosure will probably show up on your credit history and have a significant impact on your credit score. (While not every timeshare developer reports foreclosures to the credit reporting bureaus, this does not mean that your timeshare foreclosure won't show up in your credit history. 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 goes into the credit history.)
In fact, defaulting on your timeshare mortgage can be just as damaging to your credit score as defaulting on your home mortgage.
(Learn more about Timeshare Foreclosures.)
When you apply for a loan, one of the first things a potential lender takes into consideration when deciding whether to lend to you is your credit score, often the FICO score. (FICO stands for Fair Isaac Corporation, the creators of the FICO score). FICO credit scores have a 300–850 score range.
In general, a foreclosure will drop your credit score at least 100 points, probably more. The past due reports for missing your payments will also drop your score.
The actual drop in credit score can vary from one borrower to the next. The hit is more severe if you had a very high credit score before the foreclosure action. If you already have a low credit score, there is less of an impact.
(Learn more in Foreclosure and Your Credit Score.)
A timeshare foreclosure will not ruin your credit score forever, but it will have a significant impact on your ability to obtain another mortgage for up to seven years from the completion date of the foreclosure.
You may also face future loan denials or high 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. Consequently, a timeshare foreclosure can result in a much higher rate of interest than the prevailing market rates and can also result in you being denied credit in some circumstances. In addition, your existing credit cards may cut your credit line or close your account.
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 does get foreclosed, it is recommended that you stay up-to-date on your other debts. By remaining up to date on other debts, your FICO score can start to recover more quickly.
(To learn more about rebuilding your credit after a hit to your score, visit our Credit Repair topic area.)
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 cannot legally remove accurate information from your credit report, and companies that claim they can do this are not telling you the full story. In many instances, credit repair companies simply write a letter to credit report agencies disputing errors and outdated information, which is something you can easily do yourself. (Learn more in Don't Use a Credit Repair Clinic.)
To learn more about the impact that a timeshare foreclosure will have on other areas of your life, see Consequences of a Timeshare Foreclosure.
To learn about alternatives to avoid a timeshare foreclosure, see Options to Avoid a Timeshare Foreclosure.