Breaking a lease can be very bad for your credit. If you can’t find someone to take over your lease you’ll have to keep paying rent. Otherwise, your landlord could send any unpaid charges to collections.
Life changes pretty quickly, and you might find yourself needing to end a lease sooner than expected. If you break your lease, it can have some negative consequences including damage to your credit score. How you handle ending the lease can make all the difference!
Here’s a breakdown of some important things you need to know before breaking your lease, courtesy of insurance comparison
and super-app Jerry
. Does breaking my lease lower my credit score?
Whether your credit score goes down depends largely on the specifics of your lease agreement and the arrangement you have with your landlord. If you’re not careful, you might end up dealing with a debt collector, damaging your credit, or even having trouble being approved for future leases.
How much your credit actually goes down will depend on the total amount of past-due rent you end up accumulating and how long it goes unpaid. Your credit score could end up going down by 110 points or more!
You’ll want to pay all charges before leaving and follow any early termination procedures in your lease.
What happens if you can’t pay?
As mentioned above, you might be on the hook for rent in two places at once. This can be a big financial burden, and you could end up not being able to cover the cost of both. If this happens, your landlord can send your debt to a collection agency.
Having a debt placed in collections will damage your credit. It will also take your credit a long time to recover since accounts in collections stay on your credit profile for seven years after the debt has been resolved. If you don’t pay the collection agency, they may take you to court.
Of course, your landlord does not have to use a collection agency. They might decide to skip that and just take you to court themselves. This is a worst-case scenario because you’ll end up responsible for the unpaid rent as well as any court costs. The court can also garnish your wages, meaning they’ll just take a portion of your paycheck each pay period until the balance is settled.
However your landlord handles it, the situation is likely to damage your credit and make it difficult to get approved for a lease in the future.
Key Takeaway If you break your lease, you’ll need to either keep paying the rent or find someone to take over your lease. Any unpaid rent will hurt your credit score if it gets sent to a collection agency. Pay off any owed amount as soon as possible to minimize damage to your credit.
What to Expect When You Break Your Lease
Unless you’re renting your home or apartment on a month-to-month basis, you’re probably locked into a lease. A lease is an agreement between you and your landlord where you agree to pay rent for a certain period—usually 6 or 12 months. Leases are binding contracts, so breaking one can have serious financial or even legal penalties.
Look at the terms of your lease agreement
It’s not unheard of for a tenant to need to end their lease early. Some leases even have specific information about how a lease break will be handled. Check your lease to see if it has detailed information about early termination.
Your first step should always be to carefully review your lease. You’ll want to understand any and all obligations, rights, restrictions, and loopholes you have. Here are some common loopholes that might help you get out of a lease without penalty:
Unlivable conditions such as non-functioning utilities or pest infestation may entitle you to leave a lease early.
“Breach of the covenant of quiet enjoyment” occurs when there is a consistent and unreasonable disturbance of peace and quiet. This can sometimes be grounds for ending a lease or even suing your landlord.
Harassment or danger might also entitle you to end your lease early if you can prove there is a genuine threat to your safety.
Many landlords will even include step-by-step instructions on what you’ll need to do to terminate your lease. They may want you to pay one or more months’ rent as well as a fee. There is a good chance your landlord will get to keep all or part of your security deposit. If your lease does have steps for early termination, all you need to do is follow these instructions.
Key Takeaway When breaking a lease, carefully read over your lease and follow any early termination steps specified in it. Also, keep an eye out for any loopholes that might get you out of your lease early.
What if your lease does not have specific instructions?
If there aren’t clear terms for early termination, the process can be more complicated. Laws regarding lease agreements can be different depending on what state you live in. It’s a good idea to look up the relevant laws in your area. Landlords are often legally obligated to look for a replacement tenant.
You will still be responsible for paying rent until a replacement tenant is found. If nobody ends up renting the place, you’ll be stuck paying rent until the end of the lease. You’ll probably be paying rent in whatever new place you’re living in as well, so this is something to keep in mind before you break your contract.
MORE: Tips for moving out of state
How to avoid damaging your credit when breaking a lease
Breaking a lease can be stressful, especially if you don’t have a choice in the matter. The last thing you want to worry about when moving is possible damage to your credit.
There certainly can be negative consequences for your credit score if you break a lease, but there are some things you can do to protect your credit.
Communicate clearly. Many landlords are reasonable and understanding. Be upfront about your need to end the lease early. You might be able to come to an agreement.
Follow any early termination procedures specified in your lease
Get everything in writing. Document all communications with your landlord (email and text message work well for this).
Arrange for a sublease or sublet. Being proactive about finding a new tenant can help avoid any complications.
Pay everything you owe to the landlord. As long as you don’t have any outstanding debt to your landlord, your credit should be safe.
If you have arranged to have your rent reported, look into canceling it. Some people arrange for a third party to report their rent payment to a credit bureau. This can be a good way to build credit, but if you miss payments or break your lease, it could backfire. If you are the one that requested rent reporting, you should be able to cancel it.
Keep a close eye on your credit for any changes after moving out. Use a free credit reporting service to see if there are any new negative marks on your profile. If you notice any that you believe are unwarranted, you might be able to dispute them.
Subletting or subleasing
Ideally, your landlord will find a replacement tenant and that person will sign a new lease with the landlord, this is called subletting. The nice thing about subletting is that your name is not on the lease anymore and you no longer have any formal connection with the property.
Another option you might have is to sublease the property, which is when a new renter takes over living in the property and pays the rent on your behalf. In subleasing, your name stays on the lease which means you are still ultimately responsible for rent if the new tenant fails to pay. Your landlord may or may not allow subleasing.
Save money on renter’s insurance
There are a couple of ways that you can save money on renters insurance. The number one way to save on any insurance is by comparison shopping. Make sure you compare prices from at least three insurance companies to make sure you are getting the best possible rate.
Another way to save is by bundling your renter’s insurance with your auto insurance. Car insurance
comparison app and licensed broker Jerry
can get quotes from 50+ top insurance companies in seconds, making finding the right coverage fast and easy! “I just moved out of my parents’ house, so this was my first time having to buy insurance. Jerry
made it simple and painless to find a plan. Yay!” —Vic L.
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