Bankruptcy

How a Timeshare Foreclosure Affects Your Credit Score

By Amy Loftsgordon, Attorney
If you lose your timeshare to a foreclosure, your credit score will likely take a hit. The extent of the hit largely depends on how high your score was before the foreclosure.

If, as a timeshare owner, you don’t make the mortgage payments on the property or you fail to pay the assessments, you might lose the timeshare to a foreclosure. Your credit score will then probably suffer a major blow. Read on to find out just how bad a timeshare foreclosure could hurt your credit score and how a foreclosure could affect your ability to get loans or other credit in the future.

Credit Scores: How a Creditor Evaluates Your Creditworthiness

A credit score is a number that a credit scoring company, like FICO, comes up with based on your credit history. Creditors use a person's credit score as a decision-making tool to decide whether that person is likely to repay a loan on time.

Creditors typically offer loans and other forms of credit, like credit cards, at good rates to consumers with high credit scores. Consumers with low credit scores who apply for new credit, though, ordinarily have to pay higher rates or fees—or the creditor rejects the consumer's request for credit outright.

Timeshares: Costlier Than You Might Think

Timeshares are a type of vacation accommodation, like a condo at a resort, that many people own or use. (Timeshares come in two basic types: “deeded” and “right to use.” This article focuses on deeded timeshares.) Because timeshares cost a lot—the average price is around $20,000—people often take out mortgage loans to buy timeshares. The borrower then has to make monthly payments to the lender to repay the loan. In addition to monthly mortgage payments, timeshare owners also have to pay yearly maintenance fees and special assessments.

Making mortgage payments on a timeshare and keeping up with the assessments sometimes becomes a burden for people—especially during tough financial times, like if a timeshare owner becomes unemployed.

Mortgage Payments and Assessments: What Happens If You Don't Pay

If you fail to pay the mortgage or assessments for a timeshare, the developer (who is often the lender in a timeshare loan transaction) could potentially report the delinquency to the credit bureaus—though it might not (some do, some don't)—which would damage your credit score. The developer will probably also foreclose your timeshare.

Once reported, a timeshare foreclosure typically affects a person's credit score in the same way a regular, home foreclosure affects a credit score.

How Foreclosure Affects Credit Scores

A foreclosure generally lowers a person’s FICO score by at least 100 points. Exactly how much the score will fall varies from person to person. The amount of damage a foreclosure will do to someone’s score depends largely on how high the person's score was before the foreclosure. The drop is worse for people who have a high credit score prior to the foreclosure. Foreclosure has less of an impact on people who already have a low credit score.

For example, suppose your FICO credit score is 680 before a foreclosure. According to FICO, a foreclosure will reduce your credit score to between 575 and 595—a drop of 85 to 105 points. But if your credit score is 780 before a foreclosure, the foreclosure will lower your score to between 620 and 640—a more significant drop of 140 to 160 points.

Getting Credit in the Future

While a foreclosure stays on your credit report for seven years, your FICO score can start to recover in as few as two years—if you stay current on your other debts. Until your credit score starts to rebound, though, a potential creditor might turn you down if you apply for a new loan or the creditor might require you to pay a high interest rate or fees.

Questions for Your Attorney

  • How can I avoid a timeshare foreclosure if I can’t afford the mortgage payments or assessments?
  • Which foreclosure avoidance option will have the least effect on my credit score?
  • How can I avoid credit repair scams after a foreclosure?
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