If You Can't Pay Your Rent, Here's How to Save Your Credit Score

May 1 will mark the first time that rent is due a full month into the crisis. With grassroots movements across North America inviting people to keep their rent, you may be wondering what might happen to you if you don’t pay rent.

It turns out most people paid at least some of their rent in April (an estimated 75 percent in Canada and 69 percent in the U.S.), but that was still in the early days of the pandemic. One key question is, what can happen to your credit score, and your ability to keep a roof over your head, if you decide not to pay May rent? Here’s a look at what’s at risk.

It depends on where you live. Most Canadians are currently protected by eviction bans or suspensions. There is a federal freeze on evictions until the end of July in the U.S., but not all tenants qualify and some states and cities have eviction moratoriums (you can find out if you’re covered in the National Low Income Housing Coalition’s searchable database here).

Eric Dunn, the director of litigation with the U.S. National Housing Law Project, an anti-poverty nonprofit, says that if your landlord can’t evict, you should use that as leverage to negotiate if you can’t make rent. Right now they’re stuck with you and any payment is better than none. Keep records of any deal that you work out.

VICE has a step-by-step guide on what to do if you can’t pay rent because of the coronavirus crisis; you can read it here.

Under normal circumstances, if you owe rent, fees, or charges, your landlord can report that to a collection firm that shares that debt information with a credit reporting agency. Dunn said that lowers your credit score, which can affect your ability to borrow in the future.

“The mere fact that you have a former housing provider claim that you owe them money will very often make it almost impossible for you to qualify for housing somewhere else,” he said. “Having landlord-tenant debt on your credit report for anything is usually fatal to a new rental application.”

These are extraordinary circumstances, though. Among the scenarios U.S. federal lawmakers are considering are excluding COVID-19-related financial issues from your credit rating, or making it illegal for landlords to deny renting to you because of them. But there’s nothing official in place yet.

Cole Webber, a community legal worker at Parkdale Community Legal Services in Toronto, says that a tenant’s credit rating could be negatively affected if a landlord is able to get a judgement against them in small claims court. But you have time to figure things out because the court system is frozen right now, with few exceptions, and will be dealing with a backlog once it's up and running. Urgent cases will be given priority and these types of cases may be shelved for months.

“Without a judgement, landlords could attempt to report a tenant to a credit rating agency. In this case the tenant would be able to dispute the report,” said Webber.

One way to save your credit score is to pay the back rent; then you can fully dispute the report.

“Almost all landlords will deny admission to an applicant whose credit report shows that a past housing provider claims money is still owed. But I have yet to encounter a landlord who denies admission for past landlord-tenant debts once they are paid—even if they were not paid anywhere close to on time,” said Dunn.

It depends on your rental agreement and the laws where you live. If you’re locked into a 12-month lease and you want to get out of it to move somewhere cheaper, you’re on the hook for the rent your landlord isn’t able to collect before finding another tenant. One way around this is to find another tenant yourself. The landlord is supposed to be actively looking, but if you find someone to take your spot, then it’s win-win.

You may still be liable for your landlord’s losses, but they have to be reasonable. “If your rent is $1,500 a month but you terminate the lease early, no matter how much time was left, a $5,000 amount wouldn’t be reasonable if you terminated the lease with only a few months to go,” said Dunn.

The bottom line is that whatever you’re charged for breaking your lease isn’t allowed to be enough to deter you from moving out early. And, as outlined above, if you pay associated penalties, it shouldn’t affect your credit score or your future rentals.

According to Dunn, in some parts of the U.S., if you can prove that the coronavirus pandemic has eliminated the need for the rental, that’s enough of a reason to get out of your lease agreement—like if you agreed to rent a place to attend school, but your college or university is closed. Another viable reason is if your place is unsuitable or unsafe—for example, a high-rise building that doesn’t allow you to properly self-isolate.

Webber said the decision to pay rent should include careful consideration about the consequences of parting with that money, especially if your financial situation is a question mark.

“Tenants who pay May rent may be left with little to no money for food and other basics and tenants who pay rent on credit will deepen their personal debt,“ he said.

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