If you need to move before the end of your lease, you are probably wondering: Does breaking a lease affect my credit score?
Well, breaking a rental agreement won’t show up on your credit report. However, it can affect your credit score in other ways, so it’s not a decision you should take lightly.
When you rent a house or an apartment, you usually sign a contract in which you agree to pay the rent for a certain period of time. But there are situations in life that could make you change your plans from one moment to the next, such as losing your job, being transferred out of state, getting married or divorced.
- 1 Does breaking a lease affect my credit score? What really happens?
- 2 How Breaking a Lease Affects Your Credit Score
- 3 How you can break a lease without hurting your credit score
- 4 Maintaining a good credit score after breaking the lease: Conclusions
Does breaking a lease affect my credit score? What really happens?
Your lease probably has a clause that explains what will happen if it’s broken early by either party. You can even set out steps to do so, such as giving a notice period, paying two months’ rent and an early termination fee, or giving up your security deposit. In this case, follow the steps indicated in the rental agreement and make the required payments to the owner.
What happens if the agreement does not specify the consequences for breaching the rental agreement?
This may vary depending on the laws of your state. In many states, landlords are required by law to find a replacement tenant to mitigate the loss and the rent you owe. At best, the landlord finds a replacement quickly and you only have to pay a month or two’s rent.
However, if the owner cannot find a suitable replacement, you may have to pay rent for several months or, in the worst case, for the entire duration of the rental agreement. If you cannot pay, you could face the following consequences:
- You could have problems renting in the future. When you apply to rent a property, landlords can contact previous landlords or review your tenant screening report, which shows your rental history. If they find out that you have broken a rental agreement, they may be reluctant to let you rent their property.
- The landlord may turn over your rent debt to a collection agency. Landlords often use collection agencies for unpaid rent. If you don’t pay the agency after a certain time, the agency can take you to court.
- The landlord can sue you. If the landlord sues you for unpaid rent and you lose, you may have to pay the landlord rent plus court costs. If you can’t pay, the court could garnish your wages to pay back the landlord.
How Breaking a Lease Affects Your Credit Score
If you pay all outstanding charges before you move in, including any back rent and fees, breaking a lease won’t affect your credit score. However, it could be affected if an unpaid debt arises.
For example, if you break a six-month lease in the third month and the landlord can’t find a suitable replacement, you may have to pay the remaining three months’ rent. If you don’t pay, the landlord may send your account to a collection agency, which will try to get payment.
Landlords generally do not report unpaid rent to credit bureaus. However, once your account goes to collection agencies, the collection agency will likely report it. Collection accounts stay on your credit report for seven years and can significantly hurt your credit score.
Even if you think you’ve done everything right, your account could end up in collections if you or the landlord aren’t clear about the terms of the rental agreement. Before you move in, read the rental agreement carefully to make sure you understand the terms. Pay off all your debts to the landlord and keep a record of your payments to show that you are in good standing.
How you can break a lease without hurting your credit score
If you have to break a lease, take the following steps to prevent this process from affecting your credit.
- Be clear and honest with your landlord. Landlords may be willing to work with you if you communicate with them honestly. As soon as you know you need to move or think you may be having trouble paying your rent, talk to your landlord. You may be able to negotiate a solution that satisfies both parties and prevents the landlord from taking any negative action that could affect your credit.
- Understand your legal rights. Review your rental agreement to make sure you understand the terms. The lease could include options to break it by paying installments or finding a replacement tenant. Research state and local laws to see how they affect your situation. In some states, there are legal justifications for breaking a lease.
- Pay any outstanding rent debt. Make sure you pay all outstanding charges before you move in. Read the rental agreement to determine what type of rent and fees you will have to pay if you break the lease, and be sure to clarify the amount you owe with the landlord.
- Find a replacement. Finding a replacement to sublease or rent the property can minimize the owner’s financial loss. The landlord will look for a new tenant, of course, but it is recommended that you help in the process.
- Subleases: When you sublease, you find someone to move in and pay the rent, but your name stays on the lease. Technically, this allows you to move in without breaking the contract. However, you will need to make sure that the sublease is legal in your area and that the landlord agrees to the sublease. Also make sure the person you sublease is trustworthy. The fact that your name is on the rental agreement means that you are ultimately responsible for the rent if it is not paid.
- Looking for a new tenant: Help the owner spread the word by letting your friends, family, and co-workers know that your home is available. The faster the new tenant moves in, the faster you’ll get out of rent, so it’s in your best interest to help the landlord.
- Keep a detailed record. Regardless of how you handle the breach of rental process, it’s a good idea to put all conversations with your landlord in writing and keep a record of all your payments. If a mix-up occurs and something negative shows up on your credit report later, having good records will make the dispute easier.
Depending on your city or state, there may be legally justifiable situations where you can break a lease without facing any repercussions.
- Uninhabitable property: Owners are required to maintain the property in habitable condition. If the electricity, gas, heat or plumbing is not working; roof leaks; or the property is infested with vermin, you may be within your rights to break the lease.
- Violation of tranquility: You have the right to enjoy your home peacefully, which means that the property must be reasonably quiet and safe. If the landlord or other tenants violate your right to enjoy the home, it may be a justification to break the lease. Examples include a landlord constantly calling you or visiting his property unannounced, or another tenant playing loud music until 3 am every night.
- Active military service: If you are called up for active duty military service and you signed the lease prior to entering the military, you can break the lease. If you signed the lease after entering service, you can also break it if you receive deployment orders for 90 days or more or permanent change of station.
- You are being harassed or are in danger: In many states, victims of domestic violence, harassment, stalking, or sexual assault have the right to terminate their lease early. You may need to present evidence of the danger, such as a police report, to break the lease.
- The lease includes a termination clause: Some contracts specify certain conditions under which you can break the lease early. For example, you may have to pay two months’ rent before you move out.
Be sure to check your state and local laws before making any decisions. You can also get help from local tenant rights organizations, tenant unions, or rental boards.
Maintaining a good credit score after breaking the lease: Conclusions
Does breaking a lease affect my credit score? You can break a lease without damaging your credit as long as you take the proper steps. Review your lease to make sure you understand the terms, contact your landlord early enough to break the lease, and pay what you owe before you move. It’s also a good idea to check your credit report a few months after breaking the contract to make sure nothing negative has shown up. Keeping careful records will give you the evidence you need to dispute errors on your credit report that may arise when breaking a rental agreement. If you’re worried that breaking a lease will hurt your credit in the future, setting up free credit monitoring can alert you to any future problems.