The Effects of Terminating Your Lease on Your Credit

February 7, 2012 by  Filed under: Credit 

Credit can be a very tricky thing to figure out. You know you need credit and a good score in order to buy things like houses or cars or to get different types of loans. However, you do not start off with good credit then drift into bad credit, you actually start with no credit at all. This means you have to start building your credit history. How you do this may vary from person to person, but a great way is to start having bills under your name and paying them on time. So, what happens if while you are building up your history by renting an apartment or car, something happens and you have to break your lease? Terminating a lease can affect your credit quiet drastically.

First you need to understand what exactly a lease is. A lease is a contractual agreement between the lessee (the user or customer) and the lessor (the owner or distributor) over the use of an asset. A lot of times it may be called a rental agreement and can be used for just about anything that is tangible property. This can be anything like a car, house, or apartment. There are other things that can be leased out under the category of intangible property, meaning computer programs or radio frequencies. No matter what it is that is being leased, it always comes with terms and conditions.

The terms and conditions of a lease change from place to place and object to object. For most apartment or home rentals they have a minimum and maximum amount of months that the lease covers. After those months are up you can decide whether you would like to renew your lease or find somewhere else to live. However, there are some things that may happen to where you have to break your lease early. While this may be something that you can do and is outlined in the lease of how you would go about doing it, it can still do some damage to your credit score if you aren’t careful.

If you break your lease and don’t pay the rent like you agreed to, or did not follow the steps that were outlined in your rental agreement, then the landlord may seek legal actions. This may mean they send you a notice saying that you have missed a payment and then report it to the credit bureau. Once they have submitted this to the credit bureau, your credit history then will show that you have a debt you haven’t paid and it will hurt your credit.

Of course, if something like that is put onto your credit history, it will stay on there for at least 7 years. If for some reason you do have to break your lease, make sure you talk to your landlord and follow the steps that are outlined in your rental agreement. Working with your landlord (or any lessor for that matter) can help prevent having a debt reported on your credit repot, keeping your credit from going down.

Lisa Andrews
Free Credit Advice

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