Credit Repair

What Happens to Your Credit Score If You Get Evicted?

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If you lease a property and violate the terms of your agreement, your landlord may decide to evict you. Aside from leaving you with no place to live, an eviction can seriously damage your credit score, which can make it harder to eventually secure a mortgage or even get a credit card or car loan.

Though an eviction itself doesn’t get reported to the credit reporting bureaus (TransUnion, Experian and Equifax), the fallout from an eviction could be.

For example, if your landlord sells your debt to a third-party collection agency or files a civil lawsuit against you, those actions will likely appear on your credit report, thus impacting your credit scores.

A good credit score is key to securing new loans, some types of employment and even future rental properties, so anything that might negatively affect your credit report is cause for concern as that data is fed into an algorithm that makes up your credit scores.

How does getting evicted affect your credit score?

If your landlord takes legal action against you, either by turning over any outstanding payments to a collection agency or filing a lawsuit, those actions can damage your credit score as the data in your credit reports is what generates your credit scores.

If the disputed amount goes to a third-party collection agency, that is one of the worst things that can show up on your credit report with negative consequences, said Bruce McClary, vice president of communications and marketing for the National Foundation for Credit Counseling (NFCC) ®. “It can send your scores into the basement,” said McClary.

Accounts that are in collection remain on your credit reports for seven years.

The biggest factor affecting your credit score is payment history, which accounts for 35% of your credit score. If you pay off what you owe, some of the newer credit-scoring models don’t include paid collection accounts in their credit-scoring calculations, so you may want to settle up with your landlord to help improve your scores. However, any legal judgment will remain on your credit reports for that same seven-year period, which may be reviewed by future lenders and landlords.

What are legitimate reasons you can get evicted?

While rules on what actions qualify for an eviction vary by state, there are several common reasons for eviction:

  • Failure to pay rent on time
  • Substantial damage to the property
  • Behavior that endangers health and safety
  • Violation of lease terms (such as illegal subletting or too many occupants)
  • Illegal behavior on the premises (such as selling drugs)
  • “Holding over” or remaining in the property after your lease has expired

It is important to note that eviction is a legal process. You typically have to be notified in writing, which many landlords do by posting a notice on a tenant’s front door. State attorneys say tenants should not ignore these notices, and they should appear at all court dates to argue their side.

Does an eviction show up on your credit report?

While an actual eviction won’t show up on your credit report, there are related actions that can be reported to the credit bureaus:

  • Collections: If your landlord sends your account to a third-party collection agency to recoup outstanding money due, that will appear on your report.
  • Legal judgment: If your landlord files a civil lawsuit and wins a judgment against you, that legal action is part of the public record and can also appear on your credit report.

What’s the potential fallout from an eviction on your credit report?

If eviction-related activity appears on your credit report, you could have trouble qualifying for loans or renting another property.

For instance, if you apply for a mortgage and a collections action appears on your report, “that’s a red flag,” said Corey Vandenberg, a mortgage consultant with Platinum Home Mortgage, who reviews credit reports as part of the mortgage application process. “There can be problems obtaining a home loan if you’ve had an eviction and there’s a collection hanging out there.”

Plus, landlords often run credit checks on prospective tenants. While eviction records aren’t noted on consumer credit reports, they may be reported to Experian RentBureau, which collects tenant payment history for tenant screening reporting companies.

Can you repair the damage or remove the information from your credit report?

If a landlord has turned over any unpaid money due to a collection agency, paying off what you owe can help. As stated above, once the balance is paid off, some of the newer credit-scoring models will remove it from your credit reports. Plus, it just looks better to future lenders to see that you have rectified the debt.

Going forward, the best way to repair any credit damage from an eviction is to tune up your financial health. By paying your bills on time and keeping your debt low, your scores will eventually start to improve.

While damaging information can stay on your credit report for seven years, debts carry less weight the older they get as more positive information is added to your credit reports. You may choose to seek help from a nonprofit credit counseling agency, which can help you organize a budget to start repairing your credit health.

How to dispute inaccurate eviction information on your credit reports

If eviction-related information has been incorrectly reported to the credit reporting agencies, you can file a dispute with the three firms (Experian, TransUnion and Equifax).

You should get a copy of your report from each agency and look carefully to review exactly what has been reported. If you see inaccuracies, contact the reporting agencies and start a dispute. Know that by providing any supporting evidence will help your case, such as canceled checks that can prove payments were made.

If a judge dismisses a civil suit brought by your landlord, you can also petition the credit agencies to remove the information. You’ll need to get copies of court records and submit them to each agency per their process, which you can find on their respective websites.

Likewise, if you believe the collections information is incorrect, you can dispute it with the credit reporting agencies to try to have it removed from your report.

The bottom line

As a tenant, your rights and eviction procedures will vary by state and city, so it is important to understand the local laws.

In Massachusetts, for instance, landlords have to provide a 14-day written notice before initiating eviction proceedings due to unpaid rent, but in Montana, that notification period is just three days.

No matter where you live, credit advisors say tenants should never ignore an eviction notice. Failure to respond or resolve an issue with a landlord could cause years of financial hardship.

It can also help to be proactive and communicate with your landlord before you get behind on rent, said Chase Peckham, community outreach director for the San Diego Financial Literacy Center. In cases of job loss or debt from unforeseen circumstances, like a medical issue, he advised clients to communicate with their landlord and try to negotiate a compromise.

“Maybe you can pay half of your rent for a few months until you get back on track,” he said. “It is best to be honest with people that you owe money to. There will be a lot less headaches if you’re not dealing with collections.”

 

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