Does breaking a lease affect your credit score? (2024)

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• Breaking your lease may hurt your credit score if you have unpaid rent or fees in collections.
• If you pay off your collections accounts, you may see an improvement in your credit score.
• To avoid issues when breaking a lease, communicate with your landlord and pay any outstanding debts.

When you rent an apartment, your landlord will typically ask you to sign a lease, which is a binding legal contract that explains your rights and responsibilities as a tenant. Most lease lengths are anywhere from six months to two years, though they could sometimes be longer or shorter. Once your lease ends, you and your landlord decide whether or not to extend it.

However, life is unpredictable, and unforeseen events like a job loss or medical issue can disrupt your housing plans. And in some cases, breaking a lease could hurt your credit score.

Does breaking a lease affect my credit score?

A broken lease, in itself, will not damage your credit score as it doesn't appear on your credit report. But if you have unpaid rent or fees associated with breaking the lease, your landlord could send your account to a collections agency.

Once your account is in collections, the agency will most likely report the negative information to the three credit bureaus — Equifax, Experian, and TransUnion. This will significantly drop your credit score and continue to hurt it until it falls off your credit reports seven years after the debt was initially due.

That said, if you pay off any outstanding debts in collections, you may see a rise in some of your credit scores. Commonly used credit scoring algorithms like FICO 9 and VantageScore 3.0 don't consider paid collections in its calculations. However, FICO 8, one of the most popular credit scoring models among lenders, still considers paid collections as a negative mark in its scoring calculations.

Other ways breaking a lease can financially impact you

Besides damaging your credit score, breaking a lease could also financially impact you in the following ways.

Paying early termination fees.

"Most standard leases will outline a fee — often one to two months' worth of rent — to break your lease early," says Scott Neu, AIF, Financial Advisor at Reinke Gray Wealth Management. So, if your rent is $1,500 a month, be prepared to shell out $1,500 to $3,000 to cover this additional cost if you break your lease.

Before submitting your intent to vacate and terminate the lease early, Neu suggests that you get the specific early termination fee amount confirmed in writing by your landlord to avoid any issues down the line.

Forfeiting your security deposit.

"Even once early termination fees are paid, your landlord may still withhold part or all of your security deposit to cover perceived damages — including loss of expected rental income," Neu says. Most security deposits are equal to one month's rent, though some landlords may charge as high as three months' rent before they hand you the keys. If you break your lease, your landlord can deduct from your security deposit to cover any damage repairs, unpaid rent, outstanding utility bills, and other losses.

To maximize the amount of security deposit you get back, Neu recommends thoroughly cleaning the apartment before handing the keys to your landlord and making sure to document the unit's conditions with photos in case of any future disputes.

Trouble renting in the future.

"Landlords want tenants they can trust, and a history of breaking leases early — even if it just happened once — may strike them as a red flag. This is especially true if your lease ended contentiously and you've had some scuffles with your previous landlord as a result," Neu says. And even if you didn't end up in court or with a knock on your credit score, Neu warns that some landlords will call previous landlords for references, and if they find out you broke your contract, they may not want to take a chance on renting to you.

In some cases, landlords may still rent to you if you pay a higher security deposit. However, this means paying more upfront and potentially losing more if you fail to fulfill the terms of the lease agreement once again.

How to break a lease without hurting your credit

If you must break a lease due to unforeseen circ*mstances, take the following actions to ensure your credit score stays intact.

• Negotiate with your landlord. Communication is key. "To break a lease responsibly with minimal credit impact, communicate proactively with your landlord once decided — ideally 60 to 90 days in advance," suggests Neu. Sometimes, landlords may be willing to work out a mutually beneficial arrangement, such as allowing you to find a subletter or replacement tenant yourself.
• Use "Break Lease" clauses. Andrew Latham, Certified Financial Planner and the Director of Content of SuperMoney.com suggests reviewing your lease for any clauses that allow for early termination under specific circ*mstances like job relocation and military service. "Leases sometimes include terms detailing how to legally break the lease and the associated costs," he adds.
• Pay outstanding rental debt. Before packing your bags, clarify the amount of rent and fees owed with your landlord and make sure to pay them off in full. If there's any outstanding rental debt, your landlord could send your account to collections, which could leave a stain on your credit report and damage your credit score.
• Keep detailed records. Remember to document all discussions and termination fee agreements in writing. This way, if a mix-up happens or inaccurate negative items show up on your credit report later on, you'll have evidence to support your dispute.

As long as you pay all the associated fees and communicate with your landlord, breaking a lease should not hurt your credit score.

FAQ — Does breaking a lease hurt your credit score?