Owning a home isn't for everyone. Unlike homeowners, renters are not liable for property taxes and insurance, and maintaining the property's condition is often the sole responsibility of the landlord. Renters, however, must sign a lease agreement with a landlord prior to moving into the rental property. A renter's failure to adhere to his lease can have a negative impact on his credit score.
Lease Agreements
A lease agreement spells out the terms of the renter's contract with the landlord, including such items as how long the renter agrees to live on the property, the amount of rent she must pay each month and how the renter may use the property while she lives there.
Your credit report is a record of previous accounts and payments to current and past creditors. Signing a rental lease has neither a positive nor a negative impact on your credit because the lease itself is not something the landlord can report to the credit bureaus.
Credit Checks
Before offering a prospective tenant a lease agreement, most landlords want to make sure the applicant is trustworthy. By checking an individual's credit history, a landlord can determine how likely the applicant is to pay his rent on time based on the individual's history of past payments -- or lack thereof -- to other creditors.
When you apply for a rental home or apartment, the landlord conducts a "hard" credit check. This type of inquiry lowers your credit score, but only by a few points. Your credit score will gradually recover on its own after a hard credit check.
Payments
As a general rule, most landlords do not report the monthly rent you pay to the credit bureaus. Thus, adhering to your lease by paying your rent on time does not help your credit score because your payments do not appear on your report. If you move without paying rent you owe, fees you agreed to in the lease or damages you or your guests caused, your landlord may take you to court for the balance you still owe. A court's judgment against you appears on your credit record and drops your credit score.
Lease Violations
Violating the terms of your lease -- even if you pay your rent on time -- can result in your landlord evicting you from the property. If you leave peacefully and pay off any debt you owe, the landlord has little incentive to take you to court and your credit score will not suffer. If your landlord sues and wins a judgment, however, your credit score will drop.
Not only does the judgment itself hurt your credit score, but the credit bureaus will note that the judgment was connected to an eviction. Future landlords who pull your credit record will see that a previous landlord had to have you evicted from your rental property. This makes you a higher risk and could result in future landlords denying your housing applications or demanding a higher security deposit before allowing you to sign a lease.
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