An apartment lease is a commitment to pay a set amount of money each month until the lease expires. But sometimes your situation changes and you might want to break your lease.
In this article, we'll cover the reasons you'd break your lease, the pros and cons of breaking your apartment lease early, and how to break your lease without damaging your credit.
If this sounds like it fits your scenario, read on or jump to the section you are most interested in.
There are many reasons why you might consider breaking your lease.
If you’re relocating for a job, you might want to avoid paying rent on two different homes. Sometimes your company will cover relocation expenses, which could include your old lease payments, but that’s not always the case.
You might also decide it’s time to buy a home of your own. This usually doesn’t align with the end of your lease. Unless you plan to cover two housing payments, you might consider walking away from the lease.
Another common reason is when the rent payment becomes unaffordable. This can happen suddenly if you suffer a job loss and your income is significantly reduced.
We’ll talk about ways you could get out of a lease without breaking your credit in a minute. But first, consider the impact if you don’t get your “ducks in a row” first.
When you own a home and have a mortgage, lenders report payment activity to credit agencies.
The same is not always true when you’re a renter. Some large rental agencies report rent activity each month. But it’s more common that the only time your landlord or property manager would report to the three credit bureaus is when you quit making payments. So, does breaking a lease hurt your credit?
“Breaking a lease does not automatically affect a tenant's credit. Most states require the landlord to conduct best efforts to re-lease the apartment.” says Dan Tenenbaum, chair of the California Apartment Association, Los Angeles advisory board.
While there isn't a direct impact on your credit by breaking a lease, landlords have several options for reporting the break. Each option can impact your credit score, including:
Hiring a collections agency. This collections agency would then be responsible for collecting the outstanding balance on your lease.
Taking you to small claims court. This could result in a lengthy legal battle.
Either of these options would end up on your credit report and could lower your credit score significantly.
“Many home lenders and apartment owners would weigh unpaid rent balances more heavily than other types of debt. Tenants need to be careful and minimize the impact on their credit,” Tenenbaum says.
There is a less obvious risk of breaking a lease early and having collections or a small claim appear on your credit report. That risk is how people in positions of power may view your reliability in future situations that are important to you.
Most employers pull your credit report as part of a background check in the hiring process. The credit report allows them to get a good sense of your financial situation.
While they won’t be able to see your credit score, they will be able to see past negative marks on your report. If you’ve broken a lease and it was reported to credit agencies, you may be perceived as unorganized and irresponsible.
Many potential landlords are going to do a credit check in addition to a background check. The credit report helps them decide whether you will be able to keep up with payments.
If you’ve broken a lease in the past, future landlords will see you as a potential risk.
The reasons for breaking a rental lease can often be justified. But to eliminate the potential negative effects, you need to do it the right way. Here are a few ways to break a lease without it damaging your credit score.
The very first thing you should do when you need to get out of your rental lease is to talk to your landlord or property manager. Explain the situation and see if you can work something out. If you’ve been a respectful tenant who pays rent on time, there’s a good chance he or she might be willing to give you a break.
Many rental agreements give you the option to find a sublet. A subletter will take over and fulfill the remainder of your lease term.
Check your lease agreement and see if it mentions a subletting option. If there is a sublet option, you may find a small fee to use that option. The sublet fee covers the costs involved in running a background check on potential sublessees.
If you decide to try subletting the home, ask your landlord if the new tenant can put down their own security deposit. That way you’re not responsible for anything that might happen before the current lease ends.
While you’re looking for language on subletting, look closely at the rest of the lease. Many leases include a section about early termination.
Early termination clauses exist because landlords know situations arise in which their tenants need to move, breaking their lease early. Early lease termination clauses often require giving your landlord a proper written warning before leaving.
If you’re in a position where breaking your lease is unavoidable, it’s not the end of the world. There are almost always options available that can allow you to minimize the financial impact, especially in regards to your credit score.
The worst thing you can do is walk away doing nothing. You've been steadily building your credit, so work with your landlord to come up with a solution so you can minimize – or avoid entirely – the negative impact on your credit. If you are interested in building or repairing your credit score, consider getting a secured credit card.
Sean Bryant is a Denver-based freelance writer specializing in personal finance, credit cards and travel. With nearly 10 years of writing experience, his work has appeared in many of the industry's top publications. He holds a Bachelor of Arts degree in Economics. He also runs OneSmartDollar.com.