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A broken lease won't appear on your credit report. However, breaking your lease can still affect your credit score in several ways—especially if there is an unpaid debt associated with the lease.
Debt associated with a lease can hurt your credit, especially if you're behind on payments or the debt is in collections. The broken lease itself won't pop up on your credit report, but it can appear on a document called a tenant screening report. A tenant screening report is not the same thing as a credit report, but it may prevent you from finding housing.
How Breaking a Lease Can Hurt Your Credit
A landlord has the responsibility to attempt to contact you about any unpaid debt. If you can't be reached or cannot pay, your landlord has the right to sell your account to a collection agency.
Collection accounts can stay on your credit report for seven years. It's important to understand that the clock starts from the date of the first delinquency. Even if your debt transfers to another creditor, the delinquency date remains unchanged. The longer a debt is left unpaid, the worse the effect on your credit score. Having an account in collections on your credit report will have a significant negative effect on your credit scores.
But what if an account is sent to collections before you even realized you had outstanding debt? You'd think if you had broken a lease, you'd know it. But it's possible to misunderstand the terms of a lease and end up owing money without realizing.
Even if you paid your rent on time, squared away any expenses and moved out before the end of your lease, your landlord may have made a mistake about your move-out date or the specific terms of your lease. If you're unsure of where you stand and want to avoid inadvertently breaking a lease, first read your lease contract. Always make sure you have copies of your lease agreement on hand and, if necessary, ask to compare it with the copy your landlord has on file to make sure they don't differ.
How to Break a Lease Without Ruining Your Credit
While breaking a lease is never ideal, things happen. Breaking a lease is not uncommon, and usually, it does not need to affect your credit. Here are some steps you can to minimize its impact on your life and credit.
Communicate with your landlord: Talk to your landlord if you plan to break your lease, especially if it's related to a problem you can't solve. Say you've lost your job, and you can't afford rent. You will likely need to give up your security deposit. Or, they may allow you to pay reduced rent until you're caught up.
Read your lease and understand state and local laws: Before you consider breaking a lease, read your lease agreement carefully so you know your rights. You should also review state laws where you live, as these can hurt you or help you depending on the situation. For example, some lease contracts allow you to break the lease as long as you give enough advance notice. Some contracts allow you to break the lease, but only if you find someone to sublet until the lease term is over.
Pay fees and back rent: The easiest way to ensure that your broken lease will never end up hurting your credit score is to settle any outstanding charges before you move out. Check your lease agreement so you know what fees you may have to pay in addition to back rent.
Keep detailed records: Landlords, especially those with many tenants, can get wires crossed. Keep detailed records of your payments and all correspondence with your landlord. Confirm the receipt of the payments you make. That way, if something erroneous shows up on your credit report, you can dispute it with confidence.
Find someone to take your place: Landlords want to discourage broken leases because they don't want apartments sitting empty, and an empty apartment doesn't make them any money. But most landlords will let you out of a lease early so long as there's someone else available to rent it.
Sublet: If the laws of your state allow it, and if your lease permits it, you can find someone to take over your current lease. If you do this, be sure the person is trustworthy. If you're subletting, you are still the one responsible for the rent. So, if your renter stops paying, a landlord could initiate collections against you. You will also be liable for any damage to the apartment.
Find a new tenant: If you can find someone to sign a new lease and pay the security deposit, you will save your landlord considerable work.
The Bottom Line
By taking the right steps, you can break your lease without hurting your credit. If you're not sure where you stand with a lease, communicating with your landlord is the best resolution. And, if you're curious about your credit, consider reviewing a free copy of your credit report from Experian.