Can Terminating a Lease Damage Your Credit?
Terminating a lease can damage your credit because your landlord might hire a collection agency or sue you in court. Tenants break lease agreements for various reasons such as relocation, divorce or financial problems. While these are valid reasons for walking away early, landlords don't have to accept these excuses and allow early termination.
Lease Basics
Signing a lease before occupying a new apartment rental or house is customary, and landlords or apartment managers use leases to ensure a certain amount of rental income each month. Leases also provide details on activity allowed within a rental. Landlords can evict tenants who violate lease agreements. But if not evicted, tenants must remain in the unit until the lease expires, and provide landlords with ample notice before vacating the unit.
Credit and Leases
Damage caused by signing a lease agreement generally occurs after a tenant breaks the contract and moves out of the rental early. Leases are legally binding, and apartment managers and landlords can take tenants to court to collect back rent payments. Judges tend to side with landlords unless tenants can provide just reason for breaking the lease. For example, the landlord might have failed to provide safe living conditions. However, moving out of a unit simply because you're experiencing personal problems doesn't warrant breaking a lease. The judge can order a credit judgment and landlords can mention the contract breach on credit reports.
Consequences
The repercussions of breaking a lease can affect future housing options. It's common for apartment managers to run credit checks on applicants. If a manager sees that you broke a lease agreement, he might not accept your application. Furthermore, a mortgage company might not finance your home purchase because of your bad rental history. Other consequences of a credit judgment or breach of contract include higher interest rates if you qualify for financing, and lenders might require a co-signer.
Avoiding Problems
Terminating a lease without credit damage is possible as long as you approach the situation in the right manner. Don't notify your landlord a few days before you plan to vacate the unit. Give plenty of notice and work with your landlord to help him avoid a financial loss. For example, you can defer your move until he has time to show the apartment or house to other renters or you can have an applicant waiting to take over your lease. Depending on the amount of income you have in savings, offer to pay off the lease and fulfill the lease contract to avoid a legal battle and credit damage.
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