Does Timeshare Debt Hurt My Credit?
It's no secret that one of the most important assets we have in life is our credit. You need a good credit score to buy a home, a vehicle, and even to get financing for college.
So how does owning a timeshare affect your credit?
This is an important question we get asked often by our clients and prospective clients. They also want to know -
If I get rid of my timeshare, could that hurt my credit?
It's not an easy answer and requires more than a quick yes or no explanation.
First we must understand what is credit and more importantly -
How owning a timeshare affects your credit score.
So what defines your credit score - investopedia defines it as:
A credit score is a number between 300–850 that depicts a consumer's creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
When thinking about a timeshare - what factors might play into your credit score. We have found that many timeshare companies will run your credit numerous times during the purchase. This factor alone will hurt your credit. On top of which you will likely be using a new line of credit to cover the deposit requirement....sound familiar? The "6 Month, 0%" financing was actually a credit card and that credit card was used for substantial amount of money to collateralize your loan. What's worse is that money on a credit card made your debt-to-income ration (a major factor in your credit score) get out of proportion.
Then on top of that you signed up for a ten year term (most likely loan term in timeshare) at a double digit interest rate. If you were a lender would you find either of these variables favorable? Probably not. To complicate the situation even more, the timeshare 'mortgage' isn't actually a mortgage like banks consider.
Have you ever tried to refinance a timeshare loan at your bank? Good luck....
Unless you tie up your house and do a Home Equity Line of Credit, timeshares are next to impossible to refinance because they are worthless in the eyes of the bank. You read that right. The bank knows if you were to stop paying on your timeshare and they foreclosed that the timeshare would be worth less than the paper the foreclosure documents were printed on. So how does all of this play in to your credit?
Timeshare Loan Debt Can Be Considered Unsecured Debt.
That's the same category as credit card debt. It is unfavorable in the eyes of lending institutions because it means you're more at risk for not paying other debts. We know this isn't fair, and it isn't the news you want, but facts are facts.
How many timeshare owners would have bought timeshare if they had known their credit would likely suffer from the purchase? Probable one in a million.
So the next question is -
How does getting out of your timeshare help or hurt your credit?
- You will likely lower your debt-to-income ratio which will almost certainly increase your credit score
- As long as you do not foreclose on your timeshare, the cancellation process will not hurt your credit
- Contesting high interest credit card debt that was accrued through fraud certainly cannot hurt your credit either
Want to know more about your unique situation?
Set up a Free Timeshare Cancellation Consultation with Cancel Timeshare today.