How to Keep a Timeshare From Trashing Your Credit
With summer upon us, and the much-deserved vacation time that comes with it, I often get questions from friends about timeshares. Is it a good idea? How will it affect my credit? What should I watch out for?
As anyone who has had the pleasure of sitting through a timeshare sales pitch can attest to, they sound like the perfect way for just about anyone to buy in to a vacation property. And who doesn't want a vacation home? But before signing on the dotted line, make sure you understand what you may be getting yourself into.
So, What Is a Timeshare?: A timeshare is a form of shared ownership of a property by several owners. You have the privilege to use the property for a particular span of time each year. Typical timeshares include ownership of a condo, cabin, hotel room, RV or houseboat. There are two types of
If you get behind on your timeshare mortgage you can be foreclosed upon, just as if you stopped paying the mortgage on your primary home.timeshares: a deeded interest where you actually own a share of the property; or a right-to-use interest that grants you use of the property but no formal ownership.
The tricky part of timeshare ownership that many do not realize upfront is that you have the responsibilities of a full-time homeowner, yet you only have fractional usage -- and possibly not even property ownership.
Before You Buy: Don't sign on the dotted line before you consider these lesser-known responsibilities of timeshare ownership that have been known to cause folks credit trouble.
1. Timeshare Association Fees. Just as you may have homeowner association dues, special assessments, taxes and utilities on your primary home, you may have the same type of obligations for your timeshare. Also, if for whatever reason you can no longer pay or you become delinquent on your dues, taxes and fees, the timeshare association can put a lien on your ownership share of the property. This can obviously hurt your credit as well as affect your ability to sell your timeshare or use your credit for other purchases like a new car.
2. Mortgage Payments. If you decide to mortgage your timeshare ownership you will have to make your mortgage payments until the debt is repaid. If you get behind on your timeshare mortgage you can be foreclosed upon, just as if you stopped paying the mortgage on your primary home. A foreclosure will severely damage your credit and will remain on your credit report for seven years.
3. When It's Time to Sell. I have had numerous people tell me about their difficulties in selling their timeshares when they either no longer want them or cannot afford them. For example, a friend bought a $20,000 timeshare and has been trying to sell it for $10,000 and still can't get rid of it. She's considering just giving it away so she can be free of the responsibility, the mortgage and all the fees. But then she may also have a mortgage on her credit report stating "deed-in-lieu." So while she thinks this sounds simple and is only a loss of funds from the sale, it will affect her credit. In fact, according to a FICO study, a deed in lieu of foreclosure can cause a big drop in credit scores -- sometimes nearly as bad as a foreclosure.
Keeping current on all your credit obligations, on time and as agreed, is crucial to maintaining good credit. Whether you have a timeshare or are considering one, it's a good idea to stay on top of your credit so you can be aware of problems as they come up, and take care of them before they do greater damage to your credit. (You can check your credit reports for free once a year through AnnualCreditReport.com. There are also many resources that give you your credit scores for free, including Credit.com where you can also get a breakdown of what's affecting your credit and how you can improve it.)
So be smart when considering the purchase of a timeshare, and make sure you fully understand your rights and responsibilities. And in the meantime, enjoy the summer!
Jeanne Kelly is a nationally recognized authority on credit, the founder of The Kelly Group and the author of The 90-Day Credit Challenge. She has appeared on The Today Show, and blogs for Huffington Post & Poughkeepsie Journal. Visit her online at www.JeanneKelly.net.