Can a Timeshare Hurt My Credit Score?
A timeshare may quickly turn into a costly obligation. And, like any other financial commitment, a timeshare can hurt your credit score by changing the makeup of your credit usage with this type of credit. Other elements that can have an impact on your credit score include the number of open accounts, and the duration that you’ve had them open.
In general, your credit score can be negatively affected by:
-Opening multiple lines of credit on the same timeshare purchase
-Carrying a high balance on your timeshare accounts
-Closing an in-house account (a timeshare or otherwise)
-Applying for new credit on a timeshare upgrade
What Are the Financial Effects of Owning a Timeshare on Your Credit Score?
Let’s say that buying a timeshare directly from the resort company can cost $20,000 to $40,000 or more, as our own Michael D. Finn explained to Credit Card Guide. In many cases, because of this steep price, timeshare owners take out an installment loan directly from the timeshare developer. The loan for a timeshare is for 120 month or 10 years with an average APR of over 15%. This type of credit is similar to purchasing a vehicle from a “Buy Here – Pay Here” car lot. If you have Tier 1 credit, financing a timeshare can have negative effects your total credit score.
On top of that, timeshare resort companies typically charge annual maintenance fees, which can run anywhere between $500 and $5000 and rise consistently (and at rates that may far exceed the annualized cost of inflation). If you have a dispute with a timeshare resort or fall behind, some developers might report the delinquency as a 30-, 60- or 90-day late payment, which can negatively impact your credit.
To make matters worse, timeshare credit companies sometimes categorize installment loans as residential “mortgages.” What this means is that if you stop making payments on your loan, it may be reported to the credit bureaus as a mortgage foreclosure.
Mr. Finn told Credit Card Guide, many resorts “try to pick the category that does the most damage to the consumer.”
In fact, this is akin to the situation that Finn Law Group recently helped settle in a class action lawsuit against Bluegreen Corporation, Experian Information Solutions, Inc., and Equifax Information Services, LLC in Best and Snapp, et al. v. Bluegreen Corp., et al.
The plaintiffs alleged that when they were delinquent, Bluegreen sent a series of letters advising them that they were terminated from the Bluegreen Vacation Club and the status of their accounts may be reported as foreclosures to the credit agencies in violation of the Fair Credit Reporting Act and Florida debt collection laws.
While the companies did not admit liability, we were satisfied with the resolution, which deleted the harmful “foreclosure” categorization from over 11,000 individuals’ credit reports. For more on the class action case – we encourage you to read more here.
What can I do to improve my credit score?
If you’re not able to make payments on your vacation membership, what are your paths out of your stressful – and financially cumbersome – quagmire? Unfortunately, your choices may be limited.
Sell it? Because of the resort industry’s suppression of the timeshare resale market, there is not really a viable secondary sales market for many timeshares. Check on eBay for examples.
Timeshare exit companies may offer you a way to rid yourself of your timeshare obligation, but often at a high cost and without a guarantee of timely success. What’s more, many scammers look to make a quick buck off of consumers eager to be rid of their timeshare, which leads to the pernicious spread of the “timeshare resale scam.”
If you’re considering a timeshare purchase, it’s important to remember that it can have a significant impact on your credit score. It may be worth talking to a financial advisor to see if financing a timeshare is the right choice for you.
This article is for informational purposes only and is not intended to be legal advice. Led by Attorney Michael D. Finn with 50 years of experience, the Finn Law Group is a consumer protection firm specializing in timeshare law. Our lawyers understand vacation ownership as well as the many pitfalls of the secondary market of timeshare resales. If you feel you have been victimized by a timeshare company, contact our offices for a free consultation. Know your rights as a consumer and don’t hesitate to drop us a line with any questions or concerns.