Report Advice

What Is a Timeshare and Does It Go on Your Credit?

At some point in your life, you've probably been invited to a timeshare presentation in exchange for a freebie like a hotel stay, meal or concert tickets. And if you accepted the invitation, you may know a little about shared vacation property ownership.

So, what is a timeshare? Essentially, a timeshare is an arrangement that entitles multiple owners to use a vacation property for a certain number of days per year. In theory, it may seem alluring to own a piece of a property you can visit every year for a fraction of what it would cost to own the whole thing. In reality, things aren't usually so cut and dried.

How Do Timeshares Work?

When you buy a vacation home, you are its sole owner and can visit anytime you please. This privilege comes at a substantial cost: You have to purchase the entire property and are responsible for 100% of the expenses that come with maintaining it year-round.

As a timeshare owner, you can use a vacation property for a certain time period each year, typically a week or two, and pay significantly less to own and maintain it. For example, you may own a timeshare in Maui that you use the first week of April every year. As one of many owners with a stake in the property, you'll only pay a portion of maintenance and upkeep costs.

There are a few types of timeshares you can choose from, including:

  • Fixed-week timeshares: If you have a fixed-week timeshare, you own the same week every year at a specific vacation property.
  • Floating-week timeshares: With a floating-week timeshare, you can choose the week you use a vacation property within a certain season.
  • Points system timeshares: A points system timeshare allows you to buy a number of points from a vacation club and use them to book vacations at any resort within the club.

How a Timeshare Can Affect Your Credit

If you are thinking about investing in a timeshare, you may be wondering how it can affect your credit. When it comes to credit, a timeshare is risk without reward. Timely payments on your timeshare won't show up on your credit report and help improve your credit history, unless your timeshare company reports to the major credit bureaus. However, a timeshare foreclosure can drive down your score.

Even if the timeshare lender doesn't report your foreclosure to a credit bureau, it will become a public record that could end up in your credit file. A foreclosure will cause your credit score to drop significantly.

Are Timeshares Worth It?

At first glance, buying a timeshare may seem like a good idea. You are guaranteed a spot at the vacation property you purchase every year without having to pay for the property's full value and year-round maintenance.

When you take a closer look at timeshare ownership, however, you may realize that there are a few major drawbacks. If you invest in a timeshare, you'll have to pay annual maintenance fees to cover the cost of maintaining the vacation property—fees that usually increase year over year.

The average cost of timeshare maintenance fees is $970 a year, according to the American Resort Developers Association, a trade group for timeshare companies. That's a lot of cash to dish out for the landscaping, amenities upkeep and business costs of a vacation property you only use once a year.

On top of maintenance fees, you may have to pay property taxes and real estate fees, such as transfer and recording fees. Also, you'll be responsible for the cost of getting to your timeshare. If you live far from it, the cost of car or airline travel can add up quickly.

In addition, if you ever decide that you no longer want your timeshare, you may have a difficult time selling it. You may have to hire an attorney or timeshare exit company to help you out. If you do sell your timeshare, you're not likely to make a profit. Market conditions are such that reselling a timeshare can be tough, and selling it back to a resort won't get you much money.

The Bottom Line

If you enjoy taking annual vacations, you may consider buying a timeshare. Before you take the plunge, however, make sure you carefully weigh the pros and cons of this type of purchase. Once you do, you'll be able to determine whether it's a wise investment for your particular lifestyle and financial situation.