An apartment or home lease obligates you to pay a specific amount of rent for a certain length of time, one or two years for example. Sometimes you need to get out of the lease earlier than you initially agreed. Life happens. Maybe you're relocating for a job, buying a house with your new spouse, or have fallen on hard times and can no longer afford the rent payments.
Moving out of a rental before the lease ends is referred to as breaking your lease and can potentially affect your credit score, particularly if you don't pay any remaining balance when you move out. Working with your landlord to break your lease can help you avoid damaging your credit.
Costs of Breaking a Lease
Your lease probably includes a lease-breaking fee that's charged when you terminate your lease before it ends. Depending on the terms of your lease, you'll either be charged a flat lease-breaking fee or rent for the remainder of the lease. Refer to your lease or call your landlord to find out your lease-breaking fee and the proper steps to take for breaking your lease.
When you move out, you'll also be charged for any damages to the apartment that aren't covered by your security deposit. These charges would be due even if you didn't break your lease. Speaking of the security deposit, if you move before your lease ends, you may forfeit your security deposit, even if you leave the apartment damage-free.
Talk to your landlord about applying the security deposit to your lease- breaking fee. You can avoid hurting your credit by paying any lease-breaking fees in full and giving your landlord the advance notice required by your lease.
Subleasing your apartment is another option for avoiding a lease-breaking fee. This involves having another person take over the remainder of your lease and payments. Depending on the terms of your original lease, you may need your landlord's permission to before you sublease your rental.
How Lease-Breaking Could Hurt Your Credit
You can expect your landlord to take legal action if you move out before your lease ends without taking care of your lease-breaking fee or any other outstanding balance. If your landlord currently reports rent payments to the credit bureaus, they can report the delinquent balance directly to the credit bureaus to be included in your credit report.
Your landlord might also hire a collection agency to pursue you for the remainder of the lease balance, or file a lawsuit in small claims court to obtain a judgment against you. The debt collection could wind up on your credit report and severely damage your credit score.
Once your credit report contains negative entries stemming from breaking your lease, the listing will remain on your credit report for seven years.
Negative marks on your credit report will affect your credit score and your ability to rent another apartment, buy a home or car, get a credit card, or any other action that requires a good credit score.
Legal Reasons for Breaking Your Lease
If you're breaking your lease because your landlord has not fulfilled some part of the contract, e.g. failed to make repairs that affect the habitability of the apartment, you may be legally allowed to move without lease-breaking penalties, but you'll need to check your local laws to confirm.
Military members may be able to break a lease without penalty under the Servicemembers Civil Relief Act as long as the lease was initiated before active duty. This includes active duty members of the Army, Navy, Air Force, Marines, Coast Guard members serving in support of regular armed forces branches, and National Guard members and reservists called to active duty.
Your landlord may be willing to waive the lease-breaking fee if you're relocating for a new job and you can provide documentation from an employer.
Consult the laws in your state and an attorney to see if you have a legal reason that would allow you to break your lease without having to pay a penalty. Moving for personal reasons typically do not qualify.
Breaking a lease can affect your credit in certain circumstances, particularly if the early termination results in a delinquent balance that gets reports to the credit bureaus. Paying the fees or working with your landlord can help you protect your credit.