Does Breaking a Lease Affect Your Credit?

Does Breaking a Lease Affect Your Credit? article image.

When you rent a house or apartment, you typically sign a lease agreeing to pay rent for a certain period of time. But life transitions like losing your job, getting transferred out of state, getting married or getting divorced can quickly change your plans. If you need to move before your lease is up, can you break your lease—and what will that do to your credit? 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.

What Happens When You Break a Lease Early?

Your lease agreement may explain what will happen if you break a lease early. It might even provide steps for you to do so, such as giving a certain amount of notice, paying two months' rent and an early termination fee, or giving up your security deposit. In this case, you simply follow the steps listed in the lease and make the required payments to the landlord.

What happens if the agreement doesn't specify consequences for breaking the lease? This can vary depending on the laws in your state. In many states, landlords are legally required to look for a replacement tenant to mitigate their loss and your owed rent. In the best-case scenario, your landlord finds a replacement quickly, and you only have to pay rent for a month or two.

If the landlord can't find a suitable replacement, however, you might be on the hook for the rent for several months—or, in the worst-case scenario, for the entire duration of the lease. If you can't pay, you could face the following consequences:

  • You could have trouble renting in the future. When you apply to rent a property, landlords may contact your previous landlords or check your tenant screening report, which shows your rental history. If they find out that you broke a lease, they may be leery of renting to you.
  • Your landlord may turn your rent debt over to collections. Landlords often use collection agencies to collect unpaid rent. If you don't pay the collection agency after a certain amount of time, the agency may be able to take you to court.
  • Your landlord may sue you. If your landlord sues you for unpaid outstanding rent and you lose, you could have to pay the landlord the rent plus court costs. If you can't afford to pay, the court could garnish your wages to pay the landlord back.

How Breaking a Lease Can Hurt Your Credit

If you pay all outstanding charges before moving, including any back rent and fees, breaking a lease won't hurt your credit score. However, breaking a lease can damage your credit if it results in unpaid debt. For example, if you break a six-month lease in the third month and the landlord can't find a suitable replacement, you might have to pay the remaining three months' rent. If you don't pay, the landlord may send your account to a collection agency, which will attempt to get payment.

Landlords generally don't report unpaid rent to credit bureaus. However, once your account goes to collections, the collection agency will likely report it. Collection accounts stay on your credit report for seven years and can significantly hurt your credit score.

Even if you think you've done everything right, your account could still end up in collections if you or the landlord aren't clear about the lease terms. Before moving out, read your lease agreement to make sure you understand the terms. Settle all your debts with the landlord, and keep records of your payments to prove that you're squared away.

How to Break a Lease Without Ruining Your Credit

If you have to break a lease, take the following steps to help keep it from affecting your credit.

  • Be open with your landlord. Landlords are often willing to work with you if you communicate with them. As soon as you know you need to move or think you may have trouble paying rent, talk to your landlord. You may be able to negotiate a solution that satisfies both of you and keeps the landlord from taking any negative action that could affect your credit.
  • Understand your legal rights. Review your lease agreement to make sure you understand the terms. The contract might include options for breaking your lease by paying fees or finding a replacement tenant. Research state and local laws to see how they affect your situation. In some states, there are legal justifications for breaking a lease (more on that below).
  • Pay any outstanding rental debts. Be sure to pay all outstanding charges before moving. Read your lease agreement to determine what kind of rent and fees you'll have to pay if you break the lease, and make sure to clarify the amount owed with your landlord.
  • Find a replacement. Finding a replacement to sublet or rent the property can minimize the landlord's financial loss. The landlord will be looking for a new tenant, of course, but you can help the process along.
    • Sublet: When you sublet, you find someone else to move in and pay the rent, but your name stays on the lease. Technically, this lets you move out without breaking the lease. However, you'll need to make sure subletting is legal in your location and that your landlord agrees to the sublet. Also make sure the person who sublets is reliable. Having your name is on the lease means you're ultimately responsible for the rent if they don't pay.
    • Find a new tenant: Help the landlord spread the word by letting your friends, family and co-workers know your place is available. The faster a new tenant moves in, the faster you'll be off the hook for the rent, so it's in your best interest to help the landlord out.
  • Keep detailed records. No matter how you handle the process of breaking the lease, it's a good idea to put all conversations with your landlord in writing, and to keep records of all your payments. If a mix-up occurs and something negative shows up on your credit report later, having good records will make it easier to dispute.

Depending on your city or state, there may be legally justifiable situations in which you can break a lease without facing any repercussions.

  • Uninhabitable property: Landlords are required to maintain the property in livable condition. If your electricity, gas, heating or plumbing doesn't work; the roof leaks; or the property is infested with vermin, you may be within your rights to break the lease.
  • Breach of quiet: You have a right to peaceful enjoyment of your home, meaning the property should be reasonably quiet and safe. If your landlord or other tenants breach your enjoyment, you may be justified in breaking the lease. Examples include a landlord who constantly calls you or visits your property without warning, or another tenant who plays loud music until 3 a.m. every night.
  • Active military duty: If you're called up for active military duty and you signed the lease before entering military service, you can break the lease. If you signed the lease after entering service, you can break it if you get orders to deploy for 90 days or longer or to permanently change your station.
  • You're being harassed or are in dangers: In many states, victims of domestic violence, harassment, stalking or sexual assault have the right to terminate a lease early. You may have to provide proof of the danger, such as a police report, to break the lease.
  • The lease includes a termination clause: Some leases specify certain conditions under which you can break the lease early. For instance, you might have to pay two months' rent before you leave.

Be sure to check state and local laws before making any decisions. You can also get help from local tenants' rights organizations, tenants' unions or rent boards.

Keeping Your Good Credit After You Break a Lease

You can break a lease without hurting your credit as long as you take the right steps. Review your lease to make sure you understand the terms, communicate with your landlord well in advance of breaking the lease, and pay what you owe before you move out. It's also a good idea to check your credit report a few months after breaking your lease to make sure nothing negative has appeared. Keeping careful records will give you the ammunition you need to dispute errors on your credit report that may arise from breaking a lease. If you're worried that breaking a lease will hurt your credit in the future, setting up free credit monitoring can alert you to any problems down the road.