The simple act of breaking your lease will not have an impact on your credit report or your credit score. However, if a collector comes after you for an unpaid lease amount, the collection account might well appear on your credit report.
We as a country are in the midst of exceedingly uncertain times and may be for some time to come. I am finding that financial challenges are happening more and more frequently and to people who never had to face them before, as a result of being unable to work and bring in a paycheck.
If you are among those concerned about being able to pay your rent and are considering breaking your lease, you have more protections if you decide to stay where you are than ever before.
Coronavirus relief package prohibits some evictions
Fannie Mae and Freddie Mac – the government-sponsored enterprises that guarantee mortgages – and the Federal Housing Administration have responded to the COVID-19 pandemic by not allowing evictions of renters living in properties they finance.
In addition, the recently passed coronavirus relief package makes it unlawful to evict you if you are living in a single-family or multifamily property financed by any federally-backed mortgages or if you live in federally assisted housing. This protection is meant to help stabilize renters during what is recognized to be an economically uncertain time, but it doesn’t cover everyone. Additionally, many cities and states have put a halt to evictions.
See related: How to get your stimulus check faster
What happens if you break your apartment lease?
Still, what if you are considering “getting out of Dodge”? According to information from the credit bureaus, a broken lease does not appear on your credit reports. But before you get too excited about that news, you need to know that there are other reasons why bailing out on your lease mid-term could be damaging to your credit report and therefore your credit score.
The credit bureaus are most concerned with reporting how you meet your financial obligations. It is true that the simple act of breaking your lease will not have an impact on your report or score. However, if as a result of breaking that lease you owe your landlord money for back rent or damages that you are unable or unwilling to pay, those obligations, if left unpaid, will be reflected on your credit report in a negative way.
There is no information about evictions or other public records that come about as a result of a broken lease, such as civil judgments, on your credit report. So, a broken lease by itself would not directly affect your credit reports or credit scores. However, if a collector comes after you for an unpaid lease amount, the collection account might well appear on your credit report.
The most important thing to do before you take any action is to examine your lease. You need to know exactly what you signed up for and what you risk if you decide to break your lease. Chances are very good that you will at least lose your security deposit, but I hope you already know that that is a given.
People have to break leases all the time, and not just because there is a pandemic going on. One of the most common reasons is if you have to move for your job. Because of this, most leases have language that spells out the terms of what happens if you choose to break your lease.
Once you know what you are facing, you can work on figuring out the best way to go about it with the least amount of damage.
What to do if you can’t pay your rent
However, as I said earlier, if your leaving will also incur a debt that you cannot immediately pay, you are potentially looking at a negative action being reported. You could try to work out a deal with your landlord to pay the debt off over time or once your work reopens and you are reemployed. But if you do this, you need to be fairly certain you can meet the terms required.
You should also get any agreement of this kind put down in writing that you both sign. Putting everything in writing serves to make sure that you and your landlord are on the same page and clearly understand what is being promised. It is protection for both parties and should never be disregarded.
My advice for those who think a broken lease could be in their future would be to look at your lease agreement now so you know what you will need to do to avoid negative reporting. Your security deposit may be enough to cover any amounts due, but if it will not, see if you can come up with the additional funds before you give notice. This will help with negotiations with the landlord and show that you are trying your best to fulfill your obligations.
If you live in a state and an apartment complex that allow it, you could also see if you can find someone to sublet the apartment from you. Just be sure the person you choose is someone you can trust to pay the rent and keep up the apartment, because subletting will keep you on the lease for the duration.
While the breaking of your lease will not show up on your credit report, it might very well show up on another report used by prospective landlords called a tenant screening report. This could affect your ability to obtain housing in the future. That is another reason why you should be very careful about making this kind of decision. If you must go ahead, be sure to have your reasons ready to explain the circumstances to future prospective landlords.
See related: Tips for renting an apartment with bad credit
Paying your rent on time can help your score
For those who decide to stay the course, I have some good news. Positive rent payment data can find its way onto your credit report and score. Your landlord or property manager may report payments to the bureaus, but not all do. It costs them money to do so.
If you would like to have your rent payments reported to the bureaus to build up your credit history and your score – and your landlord or management company doesn’t already report your history – you can sign up to make payments through a rent payment service that works with Experian RentBureau. These payment services handle the payment and collection of your rent electronically so you will have a record of when each payment was made and received.
As an added benefit, you have the ability to opt in to having your rental payment history reported to Experian RentBureau. If you opt in, the service will have your positive rent payments reported as accounts in your credit report. Besides helping to build your credit profile, only positive information is reported, and so it can only help credit scores.
If you fall on hard times and no positive information is reported after three months, the account will just drop off your credit report – no harm, no foul.
Remember to keep track of your score!