Don't Let a Roommate Ruin Your Credit
Having a roommate can help you lower housing costs, which is helpful especially in cities with high rent. Your roommate’s financial habits could end up affecting yours, particularly if the roommate doesn’t make timely payments on shared bills. Sharing an address with someone else doesn’t automatically hurt your credit, even if that person has bad credit.
You can make shared living easier and keep your roommate from ruining your credit by setting the rules for space and bill sharing in the beginning. Decide who’s going to be on the lease (the landlord may require both people to be on the lease), whose name the utilities will be in, and how bills will be paid each month.
Sharing a Lease
Many landlords require all adult occupants to be on a lease. In that case, everyone on the lease is responsible for the rent each month.
When the rent is late, the landlord will pursue everyone on the lease for the unpaid amount. If your roommate fails to pay their part of the rent, the two of you risk being evicted, even if you’ve been paying your portion on time each month.
Being evicted is no walk in the park. An eviction will wind up on your credit report and make it harder for you to rent in the future, especially if there’s an unpaid balance associated with the eviction. An eviction can even hurt your ability to get a job, promotion, auto loan, mortgage, or credit card.
Some landlords create separate leasing agreements, so only the roommate who defaults on their share of the rent is affected by late payments. Make sure you know how your lease is set up.
What If Your Roommate Isn't Paying?
If your roommate isn’t paying their share of the rent, try discussing it first. Let them know how much harder it is for you when their portion of the rent is late. Talk about the eviction risk you both face if the roommate doesn’t pay up. If that’s not effective, discuss your options with your landlord. You may be able to move to another unit, without a roommate, depending on whether you can afford it.
You have other options, but they're not as attractive. You can pay the full rent on your own until the lease runs out. You could also opt to pay a fee to terminate your lease early. Whatever you do, try to avoid being evicted.
Your lease and your state’s tenant laws will spell out the rights you have as a tenant and with your roommate. For example, you may have the right to evict your roommate for nonpayment, depending on how the lease was signed (e.g. if you're the primary signer and the roommate isn't on the or is a sublessee). Or, the law may allow you to sue your roommate for the rent you paid on their behalf.
Roommates also share utilities. Sometimes utilities are paid directly to the landlord, but often the utilities will be in your or your roommate’s name. You are ultimately responsible for the bills in your name, no matter what oral agreements you’ve made with your roommate. If your roommate isn’t sending their portion of the utilities, it’s important that you pay the bills you’re responsible for and try to collect from your roommate later. That may mean taking your roommate to small claims court.
When the utilities are in your name: Show your roommate a copy of the bill when it comes and ask them to give you their share in advance of the due date. Pay the bill even if your roommate doesn’t give you their part of the bill and keep a record of what your roommate owes you.
When it’s time to move out, make sure you disconnect services or have the roommate switch the utilities to their own name. Too often, people leave the utilities on at a place they no longer live, the roommate doesn’t pay the bill, and the person doesn’t figure it out until the bill has gone to collections. While regular utility payments aren’t listed on your credit report, unpaid utility accounts may be sent to collections and placed on your credit report and will typically remain for seven years, even after you’ve paid.
When the utilities are not in your name: Ask your roommate to show you a copy of the bill each month in advance of the due date. You need to be sure the bills are being paid and you know your roommate is being honest about your portion of the bill. Your roommate’s failure to pay utilities in their name won’t affect your credit unless you’re also listed on the account. However, your roommate’s failure to pay can leave you in the dark and without water.
In a nutshell, when you’re living with a roommate, you have to make sure all the bills in your name are paid, even if you have to pay them yourself. Any unpaid bill can eventually affect your credit score. Considering it takes seven years for most negative information to fall off your credit report, it’s better to avoid delinquent bills to begin with.
A roommate agreement is a solid way to keep everything in order.