Does Signing a Rental Lease Affect Your Credit Score?

Signing a rental lease is customary when moving into a rental house or apartment. It's common for landlords to check the credit history of applicants, and then approve applicants based on how well they handle their debt and credit. Leases are contracts, and signing a contract can have an affect on your credit score and history. With regards to leases, credit scores are affected if you breach the contract.

Leases and Credit Reports

Signing a rental lease creates a new monthly debt, which essentially increases your debt-to-income ratio. The more bills you owe, the lower your credit score because the amount owed to creditors or lenders affects your credit score by 30 percent. However, landlords rarely report rent payments to the credit bureaus. The exclusion of this monthly debt payment on your credit report can result in a higher credit score.

Leases and Collections

While the amount you pay in rental payments each month may stay off your credit report, rental leases can affect your score if you start to default on your payments. The landlord may evict you from the property and then send your account to collections to recover back payments. Having your account forwarded to a collection agency can end with a collections account and eviction on your credit report. This type of account stays on your history for seven years and lowers your credit score.

Breach of Contract

A negative notation can affect your credit report if you breach or break the contract and move out of the home early. Signing a lease guarantees that you will live in the home for a specific number of months. If you do not fulfill this obligation, the landlord can legally sue for breach of contract, and you can receive a judgment from the court to pay back rent, and possibly be ordered to pay off the remaining lease balance. Judgments, likewise, remain on credit reports for seven years and decrease your credit score.

Protect Credit Score

Fulfilling the lease agreement is key to protecting your credit score and avoiding damage. Financial problems can affect the ability to keep a rental home or apartment. But instead of terminating the lease without notice or falling behind on payments and risking eviction, schedule a time to meet with your landlord and explain your situation. The lease agreement may include a hardship clause, which lets you leave early if you lose your job or get a divorce; or you can sublet the apartment until the end of your lease and leave the unit on good terms.

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