Does Canceling an Apartment Lease Hurt Credit History?

by Craig Berman
If you have to cancel a lease, you may have to help find your replacement.

Canceling an apartment lease doesn’t automatically affect your credit history, but it can be a big negative under certain conditions. When you sign a lease, you’re signing a contract agreeing to pay the agreed-upon amount of rent for a specified period. Breaking that contract can have far-reaching consequences that in some cases do come back to hurt your credit score.

Not Automatic -- But Possible

Landlords typically aren’t members of the credit reporting bureaus, and your monthly payments aren’t reported to the bureaus as a mortgage loan would be. If you fall behind on your rent or skip out a lease before it’s over, it doesn’t automatically affect your credit score as a late loan payment would. However, breaking a lease can trigger events that would attract the attention of the credit bureaus. This holds true even if you give your landlord advance notice that you plan on canceling the lease, since you changing your mind about the property doesn’t void the agreement.

Collection Agency Reports

If you break your lease, your landlord can hire a collections agency to pursue the balance owed. Collections agencies can and do report their accounts to the bureaus. If the account shows up as delinquent on your credit history, that’s going to lower your credit score and be a red flag for prospective future landlords.

Small Claims Court

Your landlord also has the option of suing you in small claims court for the balance of the loan. If you have a signed lease, the law likely will take your landlord’s side as a matter of contract law. That could result in a civil judgment against you. Such a judgment appears on your credit history and stays on your report for seven years -- and likewise serves as a warning to future landlords that you may not be a safe bet to fulfill your rental agreement.

Know Your Options

If you do find yourself having to cancel a lease, your best bet is to work with your landlord. Read your lease to see if there’s a provision covering what happens if you break it. Your liability may be limited to a month or two of additional rent payments, or you may be obligated to help find a replacement. If you’re canceling your lease for cause, document the issue with the relevant state authorities, and you may be able to leave without penalty. If you’re in the military and get orders deploying you elsewhere or are called up to active duty, you’ll also likely be able to break your lease without risk to your credit history, but check your state regulations to be sure.

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