More and more landlords and leasing companies now require you to meet a certain credit score before they can rent to you. For this reason, it’s perfectly understandable to assume that breaking a lease will hurt your credit score. But will it really?
Simply put, breaking a lease may, in fact, hurt your credit score. And, by extension, your ability to secure loans and credit cards in the future. In this article, we’ll be taking a look at how breaking a lease affects your credit score.
What Happens When You Break A Lease?
Breaking a lease agreement is something you never want to do. Because, regardless of whether it’ll hurt your credit, doing so will have negative repercussions. For one, you’ll lose your security deposit. And, at worst, your landlord or leasing company may file a lawsuit against you.
Usually, you’ll need to pay your landlord or leasing company a fee for breaking a lease. This typically equals an x-amount of monthly rent payments. This can get very expensive if your landlord is unable to immediately find a replacement tenant.
Landlords and leasing companies may also send your debt to a third-party debt collector. As a result, a collections account will appear on your credit report. Sadly, an account in collections is one of the worst things to happen to your credit. What’s worse, is the fact that the debt collector may also sue you.
How Breaking A Lease Affects Your Credit Score
As mentioned, breaking a lease can potentially hurt your credit score. At least, not directly. Some landlords and leasing companies don’t report to the credit bureaus. Meaning, breaking a lease won’t affect your credit score.
Plus, breaking a lease in and of itself doesn’t result in a derogatory mark on your credit report. By extension, won’t result in any direct damage to your credit score. In other words, even if your landlord or leasing company does report to the credit bureaus, it won’t result in any derogatory records.
With that said, however, not paying your outstanding debt can lead to an account in collections. Specifically, if your landlord or leasing company sells your debt to a collections agency. Sadly, a collections account on your credit report can have serious and long-lasting negative effects on your credit score.
Can You Break A Lease Without Hurting Your Credit Score?
Unfortunately, there aren’t any hacks that will allow you to break a lease unscathed. Though, there are reasons that can legally justify you breaking a lease. And, of course, allow you to do so without affecting your credit score in the process. These include if:
Your lease has a built-in termination clause. It’s important to read and understand your leasing agreement. Because, for one, some leases may specify grounds for which you can break the lease without consequences. For example, some contracts allow you to break the lease after paying a certain number of months' rent.
The home is uninhabitable. When you own a home, you’re responsible for maintaining it. Specifically, maintaining the home’s livable condition. However, when you’re renting, landlords are typically the ones liable for this. If your home has become uninhabitable as a result of your landlord’s neglect, you can legally break your lease.
Your peace is disturbed. If your landlord visits without notice or permission, or you have unruly neighbors, you may break your lease. Because, as a tenant, you have a right to some reasonable peace and quiet. If your peace is being disturbed or breached, you can break your lease without affecting your mortgage eligibility.
You're entering active military duty. You can break your lease if you’re entering military service. However, you may only do so if you’ve been ordered to deploy for 90 days or more. You may also legally break a lease if your service requires you to permanently change your station.
The Bottom Line
In summary, breaking a lease can indirectly hurt your credit score. Particularly, if your broken lease results in a collection account on your credit report. Fortunately, there are instances where you can break a lease without negatively affecting your credit. Though, there aren’t many.
Fortunately, you can always improve your credit score if you damage it by breaking a lease. One way to do this is by correcting and removing negative information on your credit report.