Does an Apartment Lease Affect Credit Score?
Renting an apartment can have an affect on your credit score if sued by your landlord. Damaged scores can affect other areas in your life, such as financing a car, getting auto insurance and even acquiring employment in certain fields. But you can protect your score and avoid damage by fulfilling the terms of your lease contract.
Definition of Lease
An apartment lease is a legal binding document between you and your landlord. Landlords create lease agreements, and this document details specific terms of your lease. Terms include the length of the lease, how much you're obligated to pay and other factors, such as return of a security deposit. You can't move into an apartment without signing the lease, and signing your name says that you agree to adhere to the terms.
Breaking a Lease
Credit scores are rarely impacted after signing a lease because some landlords do not report leases on credit reports. Apartment lease information can appear on your report if you break the lease or the landlord evicts you from the apartment. Negative information on your credit file lowers your credit rating and remains on your history for seven years. This serves as a warning to other landlords, creditors and mortgage lenders; and if applying for a new rental or mortgage, the landlord or bank may reject your application due to a poor rental history.
Collections and Judgments
Your past landlord may give your account to a collection agency to recover back-rent payments if you move out of the unit early. In this case, a collection account appears on your credit history; and like negative information reported by your landlord, a collection account remains on your history for seven years and brings down your FICO credit score. You also risk a credit judgment if the collection agency or landlord takes legal action and files a lawsuit for back-rent payments.
Considerations
Keeping your credit score in good shape after signing a lease depends on whether you fulfill the lease agreement. Apartment leases are typically for one year, and some landlords permit month-to-month or six-month lease agreements. Avoid a year-long commitment and negotiate a reduced lease term in the event that you must vacate early. Your landlord may charge a higher rent for a reduced lease term.
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