Life has a funny way of hurling changes at you at Mach speed. Sometimes these changes, such as a new job or a new romance, require that you relocate. If you're locked into an apartment lease, however, moving isn't as simple as merely packing up and heading out of town. An apartment lease is a legally binding contract. It's imperative that you terminate your lease properly, as failing to do so could result in serious repercussions for your credit rating.
Early Termination Clause
Some leases contain early termination clauses. An early termination clause stipulates the conditions you must meet in order to break your lease early. If your apartment lease contains such a clause, adhering to its terms helps you make a clean break without tarnishing your credit score. Early termination clauses vary but, if your lease contains one, it will likely require that you provide your landlord with advance notice of your upcoming move and pay a penalty for leaving early. If the lease allows, your landlord may also have the right to keep your security should you terminate your lease prematurely.
If your lease does not contain an early termination clause, leaving your apartment behind may prove difficult. Your landlord can't physically force you to stay, but he can force you to comply with the terms of the lease – even if you no longer live there. For example, if you leave early, your landlord may continue charging you rent each month until he finds another tenant to take your place. In this scenario, your landlord is almost certain to retain your security deposit and may also charge you for cleaning and advertising your old apartment for rent. The danger to your credit arises if you don't pay the landlord what you owe after vacating the premises. If you can't or won't pay the high costs associated with breaking a lease without an early termination clause, the unpaid debt could end up on your credit report and cause your credit rating to suffer.
If you adhere to the terms of your lease and pay the penalties you owe, you may walk away broke but you'll walk away without looming debt. If you don't pay what you owe, however, your landlord may turn your debt over to a collection agency. Collection agencies specialize in collecting overdue debt, and many collection agencies report accounts to the credit bureaus. Collection accounts have a significant negative impact on your credit rating and, per the Fair Credit Reporting Act, can remain on your credit report for up to seven and a half years.
If a negative report from a collection agency isn't bad enough, walking away from your lease could leave you facing a lawsuit from your former landlord. The landlord can sue you for unpaid rent and fees or sue you for breaking a legally binding agreement. If your landlord wins the lawsuit, the court will grant a civil judgment in his favor. Not only will the civil judgment leave you at the mercy of garnishment, levies and liens, it also appears on your credit report as a public record and has a negative impact on your score. Unlike most other debts, which the credit bureaus remove after seven and a half years, a judgment can continue to tarnish your credit scores for 10 years or longer.