Does Breaking a Lease Affect Your Credit?

There are many reasons to consider moving out of your apartment sooner than you’d planned.

The quiet vibe that once attracted you to the building might have been recently overtaken by the noisy neighbors that moved in next door. There could be growing security issues too large to ignore. Maybe you’ve accepted a job offer in a new town and need to relocate as soon as possible, or you’re suddenly out of work and can no longer afford the rent.

Moving out is simple enough, but doing it now could mean breaking your lease early with the landlord or property management company. “When you sign a lease, you’re agreeing to pay the rent in full each month through the remainder of the lease,” writes Angela Colley of Realtor.com. “If you move out early and skip out on the rest of the rent payments, it could come back to haunt you.”

Breaching the contract could simply mean forfeiting your security deposit — typically one month’s rent you paid in advance at the start of your tenancy. But many renters don’t realize that leaving before your lease is up can actually hurt your credit.

For week No. 2 of our weekly Credit Score Challenge, we’ll tell you how sticking it out in your apartment can benefit your FICO score, as well as give alternative ways to further boost your credit by working with — not against — your landlord.

Related: Is Your Landlord Cheating You Out of Money?

How Renting Can Impact Your Credit Score

An apartment lease is not like a mortgage. Your monthly rent isn’t borrowed and repaid, so there’s no lending activity to report to the three major credit bureaus. But if you stop paying your rent, or bail out on your lease, it can cause a chain of events that will leave marks on your credit report equivalent to a delinquent loan.

• Your landlord could take you to court. “Once your former landlord files a civil suit against you, it becomes a public record, which is included in your credit history,” according to Realtor.com. If he successfully sues you for back rent payment or other monetary damages, the court’s judgment against you can appear on your credit report in full detail, according to SFGate. That judgment could remain on your record for up to seven years, according to Experian.
• You could be reported to a collection agency. Try to up and vanish from your lease and your landlord can also hire a collection agency to recoup unpaid rent or other damages exceeding the amount of your security deposit. This collection agent will probably report the issue to the credit bureaus, leaving you with a bad mark on your credit report for seven years.
• Your apartment search could be compromised. It’s becoming more and more difficult to rent an apartment with bad credit. If you have a poor credit score, whether it comes from breaking your current lease or other negative credit activity, you might be excluded from being considered for housing, since many management companies routinely check prospective tenants’ credit reports during the application process.

Related: How to Save for a House While Renting

Here’s How to Preserve your Lease and Save your Credit

1. Just stick with it

How much longer do you have on your lease? If you signed a contract for one year, and you’re six or eight months in, you’re pretty far in. Reneging on your end of the rental bargain this far along means you could lose your deposit, get sued and/or seriously hurt your credit score. Don’t take the risk. If moving is a must, use the remaining time to search for new housing arrangements.

2. Sublet your apartment

If you must get out of your lease like your life depends on it, find someone to rent your apartment for the remainder of your time. (Craigslist, Roommates.com and Sublet.com are ideal websites.) That way, you get to move, the rent is still paid and you won’t break your lease. You’ll need an OK from your landlord before proceeding, so review your lease to see if subletting is allowed (and if it isn’t, ask your landlord anyway).

3. Pay off part of your lease

You and your credit could avoid being penalized by arranging to pay off some of what you owe. According to Rent.com, many lease agreements include “termination offers,” which allow you to pay off several months of your lease and forfeit your security deposit in exchange for leaving early.

4. Check for legal loopholes

You can terminate your lease legally with good reason. “The law allows you, under certain conditions rendering the unit significantly uninhabitable, to vacate and be relieved of the obligation to pay further rent,” according to attorney Steven Kellman, writing for The Washington Post. “In this situation, and under certain conditions, the lease could be broken with no penalty, and no minimum notice would be needed.”

These conditions could include lack of security, an insect infestation and lack of maintenance. However, without good legal cause, you’ll be responsible for your landlord’s financial burden.

5. Ask your landlord to report your rental payment behavior

If you’re a good tenant, make your rent on time and have nothing to hide, don’t you want that reflected on your credit score? After all, it’s pretty hard to get a new apartment with poor credit. Services like Experian’s RentBureau allows you to record your positive rental history, even partnering with third-party sites where you can pay your rent online.

Sign up, and your regular, on-time payments will go on your credit report, improving your credit.

This article originally appeared on GOBankingRates.com: Does Breaking a Lease Affect Your Credit?

This article by Paul Sisolak first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.