A broken lease, regardless of the reason, can significantly affect your credit rating. Landlords require lessees to sign rental agreements, wherein they agree to live in a house or apartment for a specific number of months and pay a certain amount each month. But if a lessee doesn't fulfill the contract and chooses to walk away from the lease early, landlords can take legal action.
Taking Legal Action
Rental lease agreements are legally binding, and signing your name indicates your willingness to fulfill the agreement. If you choose to vacate the home or apartment early and stop making your rent payment before the end of the lease, your landlord can file a civil lawsuit against you. A judge reviews both sides of the claim; and if you are found guilty for breach of contract, this can result in a civil judgment listed in your personal credit file. Judgments are debts you owe to creditors (such as a landlord) after a lawsuit.
Judgments and Credit
A judgment resulting from a civil lawsuit for breach of contract will remain on your credit report for a period of seven years from the date of filing. According to Bankrate, breaking a rental lease can cause a 50-point drop in your credit score. This drop and the judgment can present challenges when buying a house, getting an auto loan or applying to lease another rental property.
Handling a Broken Lease
Negotiate with your landlord to avoid or at least lessen credit damage from a broken lease. Early communication can even avert a civil lawsuit and a resulting judgment. Talk to your landlord and discuss options for vacating the premises early. Propose affordable options such as staying until a new tenant moves in, buying out the lease agreement or losing your security deposit in order to vacate early. When these options aren't doable, sublet your apartment (find someone to take over the lease) to avoid credit issues and lawsuits.
Once a judge issues a judgment for breaking a lease agreement, work diligently to pay the judgment and fix your credit report. Get in contact with your previous landlord immediately following the ruling to setup an installment plan to pay off the lease balance. After you satisfy the debt, your landlord will submit a judgment satisfaction form to the court that issued the judgment. The court will notify the credit bureaus, and the bureaus should update your credit file and report the judgment as paid. Get a free copy of your credit report from Annual Credit Report (see Resources) after paying a judgment to make sure the bureaus updated your report. If not, the credit report will include directions for disputing or updating an incorrect item, according to Experian.