Can Timeshares Ruin Your Credit? Dodge a Hit to Your Score

Can timeshares ruin your credit? Absolutely. That’s one of the main reasons why people keep properties that they no longer want. But does your timeshare have to affect your credit? Not if you take the appropriate measures to prevent it from happening. 

Today we’ll explore four mistakes that can lead to credit score problems when you’re attempting to get out of timeshare ownership. We’ll also provide guidance on how to protect your credit and pursue a smooth timeshare exit.

4 Ways Timeshares Can Ruin Your Credit

There’s a right and a wrong way to approach timeshare exits, and unfortunately, many timeshare owners are forced to take the wrong route. This can happen when timeshare maintenance fees become utterly unaffordable or when your developer deliberately creates obstacles to escaping your timeshare contract, leaving you with no choice but to stop making payments on your vacation property.

Here are four ways in which your timeshare can significantly impact your credit score.

1. Timeshare Foreclosure

Just as with any real estate, a foreclosure on your timeshare can significantly damage your credit score. You might wonder how and why you could end up in this predicament. Here are some explanations for why timeshare foreclosures occur:

• Missed mortgage payments: If you took out a loan to finance your timeshare purchase, failing to make payments consistently can lead you down a bad path. Whether your loan is from your timeshare provider or a third-party lender, halted payments can give your lender permission to foreclose on your property.
• Failure to pay annual maintenance fees: Even if you paid the entire sticker price of your timeshare upfront, you’re still responsible for annual maintenance fees. These aren’t fixed-rate fees either; instead, there may be a significant increase to your maintenance fees each year. If the rise in price becomes a burden on your finances and you stop paying these fees, your timeshare company may foreclose on you to recover their costs.
• Unpaid special assessments: On occasion, your timeshare developer may impose fees for repairs or renovations at your home resort. These special assessment costs are not covered by your annual maintenance fees. Many timeshare owners find themselves unprepared to handle these unexpected charges. Unfortunately, the inability to pay for these assessments can potentially lead to foreclosure.

What happens when you face a timeshare foreclosure? Apart from losing access to your timeshare property and potentially owing money on a deficiency judgment, your credit score will suffer a significant decline. Foreclosures have been known to decrease credit scores by 100 to 200 points. 

Furthermore, foreclosures remain on your public record, making it extremely challenging to purchase a new home. They can also indirectly lead to a bank levy if there are outstanding debts related to your foreclosed property. 

The adverse impact that foreclosures have on your credit history can significantly jeopardize your chances of securing loans for future real estate purchases. It can also impair your ability to obtain credit card approvals and even hinder potential employment opportunities, as employers frequently scrutinize job applicants’ credit reports.

2. Defaulting on Timeshare Payments

When you consistently make late timeshare payments, your developer may commence collection efforts to recoup any unpaid amounts. They will start to send you increasingly forceful letters, reminding you of the burdensome financial strain that you are likely attempting to forget. 

Your missed payments will be reported to credit bureaus, leading to a decrease in your credit score. In certain situations, this may also result in a lawsuit where you are held accountable for both the unpaid fees and the court expenses.

3. Involvement of a Collection Agency

When your developer gives up on pursuing your delinquent timeshare payments, they will send your bill to collections. Collection agencies have more resources to make you pay up, and their tactics include making persistent phone calls, mailing demands for payment, and offering settlement options. 

Whenever a negative entry appears on your credit report from the collection agency, your credit score can drop, so this is another way a timeshare can ruin your credit history.

Here are some steps that collection agencies may take with timeshare owners who have inconsistent payment histories:

• First, the collections agency will initiate contact with you about the outstanding debt. They can reach out through various channels such as phone calls, letters, or emails. Their goal is to establish a cooperative atmosphere and collaborate on a payment arrangement, aiming to motivate you to settle the debt before the situation escalates legally.
• If you choose to continually ignore collection agencies when they attempt to contact you, then they may proceed to report your late payments to the credit bureaus. This will result in a negative entry on your credit report, which can lower your credit score and have a long-term impact on your creditworthiness.
• The collections agency may send you official notices, stating the amount you owe. These notices will include deadlines and descriptions of consequences for failing to settle your debt. 
• If the debt still remains unpaid, the collections agency or the timeshare company itself may decide to pursue legal action for your delinquency. This can result in a lawsuit, and you may be required to appear in court, where you’ll likely incur additional costs such as legal fees. Collection agencies might even seize or secure liens on other assets, such as your home, in order to satisfy your debt.

4. High Credit Utilization

Credit utilization is how much of your credit limit you are using. It’s one of the factors that influences the “amounts owed” variable of your credit score. 

If you’re using a credit card to cover timeshare costs that you can’t afford, you might end up using a large portion of your credit limit. This can lead to a high credit utilization and a lower credit score.

Aside from the direct effect that a high credit utilization can have on your credit, a high balance on your credit card may make it hard for you to make your credit card payments on time or in full. Any late payment you make on your credit card will be reported to the credit bureaus and result in a negative entry on your credit report. You’ll also likely incur a late fee from your credit card company.

And even if you’re on time, if you’re only able to make the minimum payment, interest charges will be added to your credit card balance and will start to compound. With the high interest rates on most credit cards, you may find yourself in debt and struggle to be approved for future loans or credit.

Pursuing Timeshare Cancellation Without Ruining Your Credit

Is there any way to pursue timeshare cancellation without damaging your credit? Yes, selling or renting out your timeshare property is technically a method that won’t decrease your credit score. However, the timeshare resale market is highly saturated, with many owners giving away properties for free (or trying to) just to escape the burden of timeshare payments. Furthermore, many timeshare contracts include clauses that forbid owners from selling or renting their property.

Can timeshares ruin your credit? Yes, they can. However, there are solutions available to prevent credit damage, such as partnering with a team like Centerstone Group. Our proven method allows for a smooth termination of timeshare ownership, while minimizing the impact on your credit score — all without violating your timeshare contract. 

Centerstone Group offers faster and more cost-effective services compared to other timeshare exit companies and law firms, enabling us to find resolutions for your contract more efficiently. So instead of constantly monitoring your FICO Score and falling victim to timeshare scams that promise an easy way out, reach out to Centerstone Group today for a free consultation.