Does Breaking a Lease Hurt Your Credit? (2024)

When you rent a house or apartment, you usually sign a lease and agree to pay rent for a certain amount of time, often one year. Lease agreements are legally binding contracts, which means that, unless otherwise specified, even life-altering events – like a job transfer, getting married or divorced, or a family illness – won’t allow you to just move out of the rented property without potential repercussions.

Let’s take a look at what those repercussions can be, how they mightaffect your credit, and tips to avoid credit consequences should you need to break a lease.

The first step when thinking about breaking a lease is to carefully reread your lease agreement to find out if you agreed to specific outcomes related to breaking the contract. Example terms to watch for include:

• Early termination fee:Tenant is required to pay either a fixed amount or a predefined number of months’ rent in order to break the lease.
• Forfeit security deposit:Tenant agrees to give up their security deposit to be relieved from the lease’s liabilities.
• “No fees, if…”:Some landlords might accept a handful of reasons, like loss of income or accepting a job out of state, for a clean break of the lease free of cost. However, they may require sufficient notice or supporting documents to back up your claim.

If you need to break a lease, it’s important to maintain a clear line of communication. Let your landlord know about an upcoming move as soon as possible. Though there’s no guarantee that your landlord will let you breach the contract without consequences, informing them in advance may help make room for negotiation that wouldn’t be possible if you kept the move under wraps. Being honest and open may help you reach a satisfactory compromise.

It’s important to understand that different states and cities can have different laws dictating the consequences of early lease termination. Depending on your location, your landlord may be legally required to make a good-faith effort to find a replacement tenant, for example. In such cases, you may still be liable for rent and any amenities-related fees until they can find someone to fill the vacancy. This could mean that if the property isn’t rented out, you may have to pay the rent and perform all your agreed-upon tenant obligations for the remainder of the lease. It’s a good idea to find legal help to get advice for your situation.

Unlike mortgage payments, rent payments aren’t reported to the credit bureaus. But breaking a lease can still affect your credit if it results in unpaid debt.

Whether it be damage fees, termination fees, back rent, or current rent that you’re still liable for, landlords can report that debt to collection agencies, who may then report that unpaid debt to the credit bureaus. If that happens, you’ll likely see your credit score go down. What’s more, debts in collection can stay on your credit report and diminish yourcreditworthiness for up to seven years.

When there is no unpaid debt, landlords have no reason to send your account into collections, and, therefore, there is nothing to report to the credit bureaus. To further safeguard your credit:

• Pay any and all outstanding charges before moving.
• Have a copy of any documentation issued that states that you’re no longer liable for future rent on the unit.
• Know thetenant rights in your location, especially if the lease termination is legally justified (for example, if you enter active duty in the military and adhere to the specific procedure outlined in the Servicemembers Civil Relief Act¹).

Remember: Legally justified reasons can vary by state. Some states allow victims of domestic violence or harassment to break a lease without repercussions, for example. If you do plan to break a lease for a reason considered justified in your location, you may have to follow a specific set of guidelines and steps. Again, it’s a good idea to consult with a local landlord-tenant lawyer or tenants’ rights expert.

Breaking a lease might not be your only option, even if you’re sure you need to move out of your rental property. Here are two alternatives to consider:

• Find someone to take over your lease.This arrangement consists of finding someone else to take over the lease you first signed, as well as all the liabilities and tenant obligations, for the remainder of the contract. Prepare for the process to take a couple of weeks, as the new tenant will likely need to be vetted and approved by the landlord, but, ultimately, they’d be the ones liable for the lease.
• Find a subletter.In this arrangement, someone else moves into your rental unit and pays the rent, while your name remains on the lease as primary tenant. This means you’re still responsible for any potential unpaid charges or damage done to the property. That said, there are two factors to keep in mind: the reliability of the subletter, as you’re the one liable if anything goes wrong; and the legality of the sublet, as some landlords and buildings don’t allow this practice.