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Can my landlord report me to the credit bureaus?

 
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June 30, 2014
Ask Eva
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QDear Eva,

I have to break my lease because I need to find a place that is cheaper. My landlord is saying that he will report me to the credit bureaus if I don't pay for the time left on the lease, which is three months. I don't have that kind of money. Can he really do that? Is there nothing I can do? –Bess

AHi Bess,

You had better think carefully about this one. While it is not easy for landlords to report unpaid rent directly to credit rating agencies, there are several ways that unpaid rent will find its way to your credit report. This will not just damage your chances of getting the best terms on a loan or credit card; it can also hurt your chances of finding a nice place to rent going forward. So this is not a decision to be taken lightly.Ask Eva

Here's how it works. It is usually not feasible for smaller landlords or apartment management companies to report information directly to the three credit rating agencies, (Experian, TransUnion and Equifax). In order to report, they have to become subscribers to the credit rating bureaus, which is costly and requires a lot of paperwork.

What landlords can and will do, however, is to send the unpaid rent amounts to a collection agency. That agency reports the amount in collection to the credit rating agencies as an unpaid debt, and that will hurt your credit rating.

Worse, landlords can file a civil suit in small claims court for a broken lease and unpaid rent. This is a very unpleasant experience. You would have to appear before a judge, and since you'd clearly be in default, it's almost certain there would be a judgment against you. Once that judgment gets entered, it would also appear in your credit report, further dinging your credit score.

Those marks would stay on your credit report for seven years. With bad credit, you could find it difficult to get the best interest rates on future loans, or to be approved at all.

Worst of all, many landlords pull the credit report of future tenants when evaluating rental applications. So for the next seven years, each time you look for a place to rent, the prospective landlord would see that judgment against you.

This means your options would be limited, and you could end up paying a higher rate for whatever housing you could get.

In short, it may seem as though you'd save money by moving to a cheaper place, but in the overall picture, those savings could cost you dearly.

Since you only have three months left on the lease and haven't yet moved to a cheaper place, save yourself the trouble, and stay put until the lease term is completed. Like it or not, you entered into an obligation, and running away from it will hurt you much more in the long run than any financial relief you may find in the short run.

Look at what you can do to make it through these next three months. Can you have a yard sale or sell some items via eBay or Craigslist? Would a family member be willing to lend you money until you can get back on your feet? Might you be able to find temporary part-time work — even helping a friend or relative — to earn some extra money?

Secondly, take a careful look at what landed you in this situation and how you can avoid ever again getting so financially overextended that you can't pay your bills. Was the apartment too expensive to begin with? And if so, what can you do to avoid this in the future? Did you spend more money than planned on other things, so that you now find yourself short of money for the rent?

Finally, in difficult situations like this, it helps having a friendly guide on your side. Consider seeking the assistance of a non-profit credit counseling agency. It is free, and it won't affect your credit score. Having a professional guide go over your finances may help you find a way to deal with the present situation, and it can get you set up on a more solid financial footing going forward.

To find a nonprofit credit counseling agency in your area, check with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Good luck!

Got a question for Eva? Send her an email.


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