How Breaking a Lease Can Affect Your Credit
When you signed a lease for your apartment or home, you agreed to pay a certain amount of rent by a certain date each month 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. 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. Breaking your lease can hurt your credit score, especially if you don't pay the leftover 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 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. If you want to avoid paying the lease breaking fee, you may be able to sublease your apartment.
Subleasing means you have another person take over the remainder of your lease and payments. Work with your landlord to figure out the best course of action to minimize the cost of breaking your lease and to avoid damage to your credit.
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 add the delinquent balance directly to your credit report.
Your landlord could 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. Either a debt collection or judgment can 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. The negative marks 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. 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.