Does Breaking Your Apartment Lease Hurt Your Credit Score?

Posted · Add Comment
Breaking Lease credit score

Every lease agreement has certain terms which may include an agreement on a security deposit, certain rules to adhere to, and so on. So, how can you break a lease legally?

Almost all lease agreements (unless your lease is month to month) will have a clearly defined lease duration. This is yours and your landlord’s agreement as to how long you will be renting. When a lessee wants to move out before the agreed upon date, they could break the lease, but this may be detrimental in the long run and cost the lessee lots of money and harm their credit scores.

The Risks of Public Record

According to a credit repair company in Dallas, “nothing can affect your credit score positively or negatively unless it becomes a matter of public record. Public record is anything that someone can find out about you simply by visiting their local courthouse.”

It is legal for this information to be divulged because it is usually deemed “in the public’s best interest” that anyone can be made aware of things on your record at any time. Once a matter is made public it can be recorded on your credit report.

How it May Show Up on Your Credit Report

The beauty about renting is that your payments are not a matter of public record and don’t automatically show up on your credit report like they would if you paid a mortgage. So how could breaking a rental agreement affect your credit?

One way is if your landlord decides to hand your case over to a collection agency in order to collect the remaining month’s rent that you forego when you break a lease before it has run its course. It is up to the collection agency at this point whether or not they want to report you to the credit bureaus but they typically do as a tactic to get you to pay your debt. Once the case is handed to a collection agency, it becomes a matter of public record. If they do report, this will result in a negative mark against your credit score, which may not be dissolved for 7 years.

Legal Action

Another way that breaking your lease may affect your credit score in a detrimental way is if your landlord decides to take legal action and hire an attorney to take care of the matter. An attorney charged with collecting what a delinquent lessee owes will normally file a lawsuit to a judge in order to collect.

This is what is called “being taken to small claims court.” You may be asked to appear in court to determine if and how much you owe. Once it goes to small claims court, once again, your matter becomes subject to public record and can be recorded to your credit score where it is sure to do serious damage. Then you will need to focus on repairing your credit afterwards.

What Does It Cost?

This all amounts to losing more money in the long-run because having a bad credit score will cause you to pay higher interest for loans or future leases. It may keep you from being accepted for a loan or lease outright.

This will surely amount to more money spent in the future than if you simply try to work something out with your landlord before you break your lease. It may hurt initially but there may be a buy-out fee for early lease termination by which you might be able to pay a fine for breaking your lease but it won’t go on your credit report.

You may also come to terms with your landlord to pay the remaining rent while you are not actually living there or find someone to take over your lease. This all sounds expensive but it will avoid having to break the bank in the long-run.

If you do decide to end your lease early with a special agreement with your landlord (i.e. termination fee, finding a replacement or continuing to pay rent) make sure you document all conversations on the matter and to get all agreements in writing.