How Canceling a Lease Affects Credit

A lease is a contractual obligation for you to make regular payments in exchange for the reasonable use of a piece of real estate or property. Once you have agreed to the conditions of the lease, breaking or canceling it will usually result in notification of credit agencies as well as penalties or other fees. There are, however, legitimate reasons for canceling a lease, as defined in the leasing contract.

Leases are Contracts

The purpose of a lease is to give you permission to use or occupy property and to provide the rules under which you can do so, typically by paying your regular lease payments. The property owner is protected because the lease specifies how long she can expect to receive payments, how much those payments will be and when they are due. If you default on any of these items, the lease can be terminated by the property owner, and the penalties for breaking the lease as defined in the contract will go into effect, including making a report to credit reporting agencies.

Ramifications of Broken Leases

Lease cancellation terms specify that a portion of the remaining lease amount must be paid and may include maintaining payments on the property until the property is delivered to a new lessee. Canceling the lease for reasons other than those defined in the contract may include a report to credit agencies which translates into having a detrimental effect on your credit score.

Early Lease Termination

Most leases include clauses that specify how a lease can be terminated early without affecting your credit score. They normally include not only paying a percentage of the remaining lease balance but restocking, cleaning or other incidental fees. Your deposit will be forfeited, but the termination will not be reported to credit agencies and will have no affect on your credit score. It is imperative that you follow the exact guidelines for early termination as defined in the lease contract, or the cancellation could be posted against your credit record.

Canceling a Lease Legally

There are a limited number of reasons that a lease can be broken. Insect infestations and structural problems that are ignored after making written complaints are two such reasons, while loud neighbors or the property turning out not to be what you expected are not. Research the item being leased carefully before you sign the contract, because you are financially obligated afterward, regardless of whether the property meets your original expectations.