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

Highlights:

• Rental payment data may appear on your credit reports.
• If you don't pay the penalties from breaking a lease, the debt may go to a collection agency.
• If a collection agency reports your debts to Equifax^®, Experian^® or TransUnion^®, that impacts your credit scores for up to seven years.

The world is always changing. With it comes changes to your basic needs, especially your housing needs. As your needs change, you may have questions about your lease and how breaking it can affect you. One of our valued customers reached out and asked us this question: "My girlfriend and I live in a large city and have been stuck in our shared studio apartment. We've been thinking about moving, but our lease isn't up for another six months. If we break our lease, will it affect our credit scores?". The answer: it's possible.

Is My Lease Reported to the Three Nationwide Credit Reporting Agencies (NCRAs)?

Each NCRA reports rental payment in a different way. And it all depends on how your property management company reports rental payments. So it's important that you are mindful of the lease agreement conditions. If you break your lease, there are some ways to soften the impact to your credit.

What Happens When I Break My Lease?

When you break a lease, your landlord will most likely charge you penalty fees. If you do not pay these penalties, your landlord can turn the debt over to a collection agency. This can impact your credit scores if the collection agency reports the debt to the NCRAs. There's then a chance that the collection agency will report your debt to the three NCRAs. This could cause a negative mark on your credit scores for up to seven years. Future landlords will also check your credit history before approving you. They will be able to see this unpaid debt, making it harder for you to secure a lease down the road.

The penalty for breaking your lease will vary from landlord to landlord. It 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 be on the hook for any damage done to the apartment that your security deposit doesn't cover. You may also lose the right to your security deposit if you break the lease, even if there's no damage to the property.

It's also important to find out whether your lease requires advance notice, and how much, before leaving. If you haven't given the landlord enough notice that you're moving out, they may add more penalties. Again, the penalties won't generally appear on your credit reports, but failing to pay them might. To find out what it will cost to get out of your lease early, review your lease or talk to your landlord.

Can I Avoid Penalties When I Break My Lease?

Penalties associated with breaking your lease are hard to avoid. If you talk to your landlord about your circumstances, you may be able to negotiate lower fees. If you are the survivor of domestic abuse, you can invoke the Safe Housing Act. There is also help for active duty military with the Servicemember Civil Relief Act. This applies if you or your spouse are being deployed or reassigned in the course of active duty.

You should also consider the reason why you're wanting to break your current lease. Are you breaking your lease because your landlord has violated the lease terms? If so, you may have other options. Depending on your local landlord-tenant ordinances or state law, you may not owe any fees. You can also ask about other relief options. You could apply your security deposit to your debt or work out a reduced payment plan. Make sure you get any agreement in writing. This helps protect you if your landlord tries to increase how much you owe.

If you have time to plan your move, consider finding someone to sublet from you for the rest of your lease. Subletting is often the most accessible, cost-effective way to break your lease. But you'll need to ask the landlord to provide the policy about subletting. Your name is on the original lease and you are still liable for the rent.

Paying Attention to Your Credit Scores

Create a myEquifax™ account to get free Equifax credit reports. You can also get your free weekly credit reports through www.annualcreditreport.com from each of the three NCRAs.

You can get a free monthly Equifax credit report and a free monthly VantageScore^® 3.0 credit score by enrolling in Equifax Core Credit™. This credit score is a VantageScore 3.0 based on Equifax data. A VantageScore is one of many types of credit scores.