If you’re thinking about breaking your lease (or have already broken it), you’re probably wondering what this means for your credit score. Fortunately, there’s good news—ending a lease early doesn’t generally hurt your credit.
However, that’s contingent on one thing: you have to pay all of the debts you owe to your landlord or property manager in full, including any penalty fees they hit you with.
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Why breaking a lease doesn’t normally hurt your credit score
Your credit score is calculated from the information on your credit reports. This information is reported by companies known as “data furnishers,” which include creditors (such as banks) and debt collectors.
Notably, property managers and landlords are not data furnishers. They don’t report the status of your lease to the credit bureaus that produce your credit reports.
If you break your lease, it won’t be included in the information shown on your credit report. This means that lenders won’t see it when they check your credit history, and it can’t possibly affect your credit score.
How breaking your lease can indirectly hurt your credit
Although breaking your lease can’t directly affect your credit score, it can indirectly damage your credit if you owe your landlord money and fail to pay it back.
If you move out without paying your landlord everything you owe, they’ll probably start by trying to collect your outstanding bills on their own. However, after a while (usually several months), they may hire a debt collector to help them.
As mentioned, unlike landlords, most debt collectors are data furnishers. This means they’ll report your unpaid debt to the credit bureaus. It will appear on your credit report as a “collection account,” a highly damaging derogatory mark that will cause a major drop in your credit score.
Note that this scenario isn’t specific to debt that comes from breaking a lease—virtually any unpaid debt can be passed to a debt collector and end up hurting your credit this way.
Types of debt you may owe after terminating your lease
There are a few types of debt that you might be left with after ending your lease agreement early:
- Back rent: If you owe your landlord previous rental payments, you’re still legally obligated to pay them—breaking your lease won’t cancel them.
- Future rent: Many rental agreements (leases) contain “rent-responsible clauses” that obligate you to keep paying rent until and unless your landlord is able to find a new tenant to take over your lease.
- Breach penalty fees: Some leases also contain breach penalties, which are essentially fees for ending your lease early.
Before terminating your lease, read it carefully to figure out what you’ll have to pay. There will probably be an early termination clause that spells it out in detail.
Circumstances when you don’t have to pay
Note that in some circumstances, these fees might be void, which means you won’t have to pay them (and they won’t be able to hurt your credit). This will usually be the case if there’s something wrong with your apartment that’s forcing you to move out through no fault of your own.
The exact conditions depend on your local and state laws. In many cases, you can break your lease without paying if any of the following are true:
- The property isn’t safe: If you discover that your apartment or rental unit is illegal or unsafe (e.g., it’s located in a basement that’s noncompliant with health codes), any early termination fees in your contract are void. Similarly, if your landlord violates your privacy or your rights, you have the right to leave without paying a penalty.
- You’re being called up to military service: If you enter active duty military service, you may get special dispensation when it comes to breaking your lease, in which case you won’t be subject to early termination fees.
- Your landlord isn’t trying to find a new tenant: If your lease specifies that you have to pay rent until your landlord finds a new tenant, this may be contingent on them making a reasonable effort to do so. If you can prove that your landlord is just collecting your rent without actually searching for a replacement, you may be able to take them to court and challenge those payments.
- The penalty fees are excessive: If your contract’s termination fees are unreasonably punitive (too high), you can probably fight them. What counts as “excessive” depends on your state and local laws and the apartment itself.
If you think you have a good reason for not paying, your best bet is to contact an attorney in your area right away. Do this before your landlord sends your debt to a collector—in fact, do it before you break your lease, if possible.
If you wait until your landlord sends your debt to a collection agency, it will be a lot harder to challenge it and protect your finances and credit score.
How to protect your credit when breaking a lease
The simplest way to avoid credit score damage from breaking your lease early is to pay your landlord any money you owe them in full and on time. If you do that, they won’t have any reason to hire a debt collector, and a collection account won’t appear on your credit report.
This is assuming that the debt is valid. If you think there are mitigating circumstances that mean you shouldn’t have to pay, then as mentioned, your first step should be to talk through your situation with a legal professional.
What if you owe a debt that you can’t pay?
If you legitimately owe your landlord money after breaking your lease and you can’t afford to pay, contact them right away and explain your situation.
Your landlord doesn’t want to deal with debt collectors any more than you do, so they might be willing to negotiate a solution. For instance, you could offer to let them keep your security deposit in return for waiving your early termination fees, or work out a plan where you’ll pay off your debt in manageable monthly installments instead of all at once.
If you contact your landlord before you move out, they might also agree to a compromise that doesn’t involve breaking your lease at all, such as allowing you to sublet your home to another tenant.
Again, the important thing is to contact your landlord proactively, before your debt ends up in collections. Landlords are usually much more willing to negotiate than debt collectors are.
What to do if your debt is already in collections
If a debt you incurred by breaking a lease has already been placed with a debt collector, don’t panic. Read up on how to deal with debt collectors and how to rebuild your credit after collections. As long as you know your rights and have a clear plan, this doesn’t have to be a disaster for your finances or credit.
