Does Breaking a Lease Hurt Your Credit Score?

Most people who sign a lease have no intention of breaking it. However, life can throw surprises your way that make it necessary to break your lease early. Does breaking a lease affect your credit score? It usually doesn’t, at least not directly.

A lease agreement is a contract between you and the landlord. Simply ending that contract early does not appear on your credit report.

Unfortunately, the trickle-down consequences of breaking a lease early can affect your credit if you don’t pay what you owe and the landlord takes legal action against you. Learn more about the effects of breaking a lease.

Does breaking a lease affect your credit?

In most cases, breaking a lease doesn’t have any direct impact on your credit profile. Bureaus don’t usually collect information about terminated leases.

Your credit score is based on information reported by lenders, creditors, and collection agencies. That third group could get involved if your landlord reports your unpaid debts to a collection agency.

How breaking a lease can indirectly hurt your credit

When breaking a lease, credit score decreases can result from connected financial implications. While the mere act of breaking the lease won’t harm your credit, the aftermath of that action can have several effects that could negatively impact your score.

Unpaid fees sent to collections

Many leases include early termination fees. You could also be billed for cleaning costs, repair expenses, and unpaid rent during a specified notice period. If you don’t pay these balances, the landlord will probably send the debt to a collection agency.

Even a relatively small collection account will hurt your credit score, and it could make it more difficult for you to borrow money in the future.

A civil judgment on your record

If a landlord sues you for unpaid rent or damages, a civil judgment could be issued against you. These judgments usually don’t show up on a credit report. However, if you don’t pay the debt, the lawsuit could still end up in collections. Most collection agencies report to the major credit bureaus.

Negative rental history reported to bureaus

Some landlords and property management companies report rental payment history to consumer reporting agencies. If your landlord participates in such a program and you break your lease, the event could be added to your rental history. That negative history could surface when you apply for rental opportunities in the future.

Does breaking a lease affect your credit score? Not directly, but many people who break a lease find themselves facing downstream issues that can have an effect.

How to check if a broken lease is on your credit report

If you’ve broken a lease and want to find out whether it’s hurting your score, request a free copy of your credit report. You are entitled to one free copy of your report per year from each of the three major credit bureaus. If you discover a collection account linked to a lease you’ve broken in the past, consider paying off the past-due amount.

How to break a lease without hurting your credit

If you have to break a lease, you have some options that can help protect your score.

Negotiating with your landlord

Talk to your landlord about the situation. Most landlords and property management companies want to work things out so they can avoid the collections process.

Explain your situation and ask if the landlord will agree to let you terminate the lease early in exchange for a reasonable fee. It’s unlikely they will let you off the hook without paying anything.

Find a replacement tenant

Many lease agreements, especially those for apartments, include a clause that allows you to find a replacement tenant. If you help locate someone who can take over the lease, you may face lower fees for breaking your contract early. That can result in huge savings and reduce the financial consequences of ending the lease early.

Pay any fees you owe promptly

If the first two solutions don’t pan out, pay your lease termination fee and other costs as quickly as you can. While spending the extra cash is something you’d want to avoid during a move, taking care of the debt now can help you avoid damage to your score in the future.

Get everything in writing

Always request written confirmation of any agreement with your landlord, especially if they agree to a solution that deviates from the original lease. You need to protect yourself and your financial interests.

Breaking a lease: Credit score implications matter

If you break a lease and don’t handle the financial obligations that come with it, you could find yourself dealing with collections calls and negative rental history. If you’ve already run into these problems, resolving them and adding positive payment history to your financial profile can help you bounce back.

If you’re not sure where to start, Kikoff offers free and paid credit-building tools, including rent reporting, a credit report error dispute tool, and a free Kikoff account. Sign up today and tap into our credit-building resources.