Timeshares can be a burden. If you're 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.
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.” To learn more, see 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. And, 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, 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 some cases, defaulting on your timeshare mortgage can be just as damaging to your credit score as defaulting on your home mortgage.
FICO credit scores, the most common type of credit scores, have a 300–850 range. In general, a foreclosure will drop your FICO credit score at least 100 points, probably more. Past-due reports for missing your payments can also drop your score, assuming the timeshare lender reports them.
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's less of an impact. (Learn more in Foreclosure and Your Credit Score.)
A timeshare foreclosure will not ruin your credit score forever, but it could have a significant impact on your ability to obtain another mortgage for up to seven years from the completion date of the foreclosure.
You might 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 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.
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's recommended that you stay up-to-date on your other debts. By remaining current on other debts, your FICO score can start to recover more quickly.
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, and 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. (Learn more in Don't Use a Credit Repair Clinic.)
To learn about alternatives to avoid a timeshare foreclosure, see Options to Avoid a Timeshare Foreclosure.