Before making the decision to ignore and break a legally binding contract, understand the consequences of such behavior. Contracts between two people protect the interest of the person or business that provides a service or funds. Contracts are common with rental leases and when borrowing money from a bank. These legally binding documents detail how much a person will pay and for how long. But when individuals decide to end a contract prematurely, the credit consequences are often devastating.
Collection Account
Anything negative reported on your credit report by a collector has a negative impact on your credit history. Collection accounts are standard after breaking a contract because companies and lenders are likely to refer your name and personal information to a collection agency. Agencies take over collection attempts after a broken contract and after original creditors write-off the debt. Collection agencies can call or write to recover money, and some even pursue a lawsuit. A collection account can affect your credit history for seven years.
Legal Action
The words "broken or breach of contract" may not appear on your credit report. But if a bank or company sues for a broken contract and the judge concludes that you're guilty of this breach, a credit judgment is most likely to tarnish your credit record and influence how future creditors view your loan applications. Judgments, like collection accounts, remain on reports for seven years. Even if you previously had an acceptable credit history and score, the reporting of a judgment can knock points from your rating and make you an undesirable candidate for financing.
Protect Credit History
Avoidance of any credit problems with a contract involves fulfilling your contractual agreements and refraining from legal actions. Understandably, situations can prevent the fulfillment of such agreements. But rather than shrug of your commitment, talk with the company that holds your contract to see if you can resolve the situation amicably and avoid credit and legal troubles. An explanation of your situation may generate help from a company or lender. For example, a rental landlord may dismiss your lease agreement if you lose a job, and your mortgage company may agreeably modify your home loan to help you keep the property.
Rebuilding Credit
Realistically, you can't avoid credit damage with every broken contract; and some companies and banks aren't prepared to offer assistance. If you can't fulfill the contract, and a collection's account or judgment is inevitable, understand that the damage from either isn't permanent. Credit repair after a serious ding on your report is doable. This involves wise future credit moves to slowly replace negative actions with positive actions. Paying off your other obligations in a timely manner and keeping minimum debts helps restore your score.
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