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 yourcredit 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.
- Breaking a lease can affect your credit in certain circ*mstances.
- If early termination results in a delinquent balance that is reported to the credit bureaus, your credit can be affected.
- Paying the fees or working with your landlord can help you protect 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.
Note
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 yourlease and payments. Depending on the terms of your original lease, you may need your landlord's permission 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.
Note
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 and have the evidence of such events and facts documented and in forms that are irrefutable by your state laws.
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.
Note
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.
Frequently Asked Questions (FAQs)
What constitutes breaking a lease?
Breaking a lease occurs when either party terminates the agreement without meeting all the terms. As a renter, this usually occurs when you stop paying rent or don't pay your rent in full. It can also occur if you break other rules that are in your lease. In some cases, you may have legal cause to break the agreement. If not, however, you may have to pay a penalty and you risk damage to your credit.
What is the typical penalty for breaking an apartment lease?
Penalties for breaking a lease without legal protection vary based on state laws and the details of your lease agreement with your landlord. Typical penalties are a percentage of remaining rent, a full one or two months' worth of rent, or even the full amount of rent you owe for the remainder of your lease. Be sure you understand your obligations and rights before you break your lease.
FAQs
The Takeaway
How much does your credit score drop when you break a lease? ›
All in all, the breaking of the lease itself won't hurt your credit, but the late payment of your credit card balance will. If you are considering breaking your lease and are concerned about the possible consequences, you may want to become aware of what might happen next.
Does returning a lease hurt your credit? ›
Breaking your car lease early and paying off your balance due, however, won't directly impact your credit score. When you pay off your lease loan balance, the credit bureaus consider that credit record closed. It's similar to paying off a car loan, personal loan, or any other installment loan.
How to get a broken lease off your credit report? ›
Removing a history of unpaid debt from a broken lease can be challenging since accurate negative information typically stays on your credit report for years. However, if you believe the negative item is inaccurate, you can file a dispute with the credit bureaus to remove it.
Does cancelling a contract hurt your credit? ›
While cancelled credit agreements shouldn't result in any negative additions to your Credit Report, if you made the application with another person – for example as a joint unsecured loan – you may create a Financial Association with them.
Will a broken lease show on credit karma? ›
Breaking a lease won't show up in your credit report, but it can still hurt your credit score in other ways, so it's not a decision to make lightly. Here's what to know before you make a move.
Why did my credit score drop after paying off lease? ›
It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.
Should I pay off an old apartment debt? ›
Clearly, it's usually always in your best interests to pay off an old apartment debt, but figuring out how to pay off eviction debt is another story altogether. After all, you likely got into debt in the first place because you didn't have the money to pay off what was owed.
Does lease show up on credit report? ›
Just make sure to stay on top of your payments. Lease payments are reported to the major credit bureaus the same way finance payments are. On-time bill payments are one of the strongest factors influencing your credit score, so keeping up with your lease payments should have a positive effect.
Does paying off a lease help your credit score? ›
But no. Paying off a lease early will damage your credit score because the account will be reported as a closed account. This will look bad on your credit report because it looks similar to when a creditor allows you to pay less on a debt to close it.
A broken lease will not appear on your credit report, but unpaid rent could be sent to collections, and a collection account can stay on your report for up to 7 years. A collection account will negatively impact your credit score, and you could be sued if the debt is not repaid.
How long does apartment debt stay on credit? ›
The judgment may appear on your credit report and/or tenant screening reports for up to seven years. Read this guide to learn more about when it is legal for a rental debt judgment to appear on your “record” and how you can dispute any improperly reported judgments for rental debt.
How do you remove an apartment from your credit? ›
Yes, you can remove addresses from your credit report as long as it isn't currently associated with any of your accounts. Usually, you'll need to file a dispute with the credit bureaus. Each of the three credit bureaus — Experian, Equifax, and Transunion — have ways to dispute a charge online or through the mail.
How badly does a broken lease affect your credit? ›
Failure to pay penalties from breaking a lease can impact your credit scores if the debt from the penalties is turned over to a collection agency. If a collection agency reports your debts to Equifax, Experian or TransUnion that could negatively impact your credit scores for up to seven years.
Does unpaid rent affect credit score? ›
Not paying your rent could damage your credit score if your landlord decides to report the delinquent payment to one or more credit reporting agencies, or if they decide to sell the debt to a collection agency.
Can I cancel an agreement that I signed? ›
You usually cannot cancel a contract, but there are times when you can. You can cancel some contracts within certain time limits. Some contracts must tell you about your right to cancel, how to cancel them, and where to send the cancellation notice.
Does paying off a lease early help your credit score? ›
But no. Paying off a lease early will damage your credit score because the account will be reported as a closed account. This will look bad on your credit report because it looks similar to when a creditor allows you to pay less on a debt to close it.
How much does your credit score drop when you get an apartment? ›
Landlords may also do a hard credit inquiry. In most cases, a hard credit inquiry usually reduces your credit score by less than five points. But according to FICO, if you have a short credit history or few accounts it could hurt more.
How much does not paying rent affect credit? ›
Missing a rent payment by a few days won't hurt your credit. But if you leave your rent unpaid by 30 days or more, it could damage your credit if your landlord reports the delinquency to one or more credit reporting agencies.
Does paying off a lease build credit? ›
Lease payments are reported to the major credit bureaus the same way finance payments are. On-time bill payments are one of the strongest factors influencing your credit score, so keeping up with your lease payments should have a positive effect.
