You Ask, Equifax Answers: Does Breaking a Lease Affect Your Credit Scores?

Highlights:

• Rental payment data may appear on your credit report.
• Failure to pay penalties from breaking a lease can impact your credit scores if the debt from the penalties is turned over to a collection agency.
• If a collection agency reports your debts to Equifax, Experian or TransUnion that could negatively impact your credit scores for up to seven years.

Question: My girlfriend and I live in a large city and have been stuck in our shared studio apartment. We've been seriously thinking about moving, but our lease isn't up for another six months. Will our credit scores be affected if we break our lease?

Answer: Rental payment reporting is handled differently by the three nationwide reporting agencies (CRAs) — Equifax, Experian and TransUnion. Depending on how your property management company reports the data, it may appear on your credit report. So, it's important that you are mindful of the lease agreement conditions. Leaving your studio without providing advance notice, finding a subletter or making similar arrangements could affect your credit history.

When you break a lease, you'll generally be charged penalties by your landlord. Failure to pay these penalties can impact your credit scores, as your landlord can turn the debt over to a collection agency. There's then a chance that the collection agency will report your debt to the three CRAs, which could result in a negative mark on your credit scores for up to seven years. Additionally, future landlords will likely check your credit history before approving you for a lease and will be able to see this unpaid debt — potentially making it harder for you to secure a lease down the road.

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The penalty for breaking your lease will vary widely by landlord and can range from a flat fee to the total rent owed for the entire time you should have been in the apartment. You will also typically be on the hook for any damage done to the apartment that your security deposit doesn't cover. Additionally, you might forfeit the right to your security deposit as a result of breaking the lease — even if there's no damage to the property.

It's also important to find out whether your lease requires a 30- or 60-day notice before leaving. If you let your landlord know you are moving out too late, they may be able to increase your penalties. Again, the penalties themselves won't generally appear on your credit reports, but failing to pay them might.

To find out exactly what it will cost to get out of your lease early, carefully review your lease or talk to your landlord.

Normally, penalties associated with breaking your lease are hard to avoid. The Covid-19 pandemic has dramatically altered many Americans' financial situations and priorities. If you talk to your landlord about your specific circumstances, they may be willing to negotiate lower fees. Potential relief options could include applying your security deposit to your debt or working out a reduced payment plan. Make sure you get any agreement in writing so you can hold your landlord accountable if they try to increase how much you owe.

Also, if you are leaving your current home because your landlord has violated the lease — such as failing to make crucial repairs — then you may have other options. Depending on your local landlord-tenant ordinances or state law, you might not owe any fees at all for breaking your lease.

If you have time to plan your move, you can always consider finding someone to sublet the home from you for the remainder of your lease. Your name is on the original lease and you are still legally liable for the rent, but subletting is often the most accessible, cost-effective way to leave a lease earlier than you originally intended.