How Your Roommate Could Wreck Your Credit and Your Finances

Three roommates converse over pizza in their apartment.
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Whether you’re finally ditching mom and dad’s place for the very first time or you’re venturing away from the dorms, moving into your first apartment is exciting… and expensive. 

So it’s no wonder that many young, urban apartment dwellers rely on roommates to make the situation more affordable.

Of course, living in a full house isn’t always easy. And as frustrating as it is to do dishes that aren’t yours or put up with loud music late at night, when it comes to your finances, things can get downright ugly.

Fortunately, an ounce of prevention can be worth more than a pound of cure if you choose a trustworthy roommate and establishing ground rules from the get-go. And that means understanding what can go wrong — and what can go right.

Here’s what you need to know about how roommates can affect your credit, and other financial considerations to keep in mind while you’re navigating the big move.

3 Ways Roommates Can Go Wrong

A roommate or two can mean lower costs and constant dinner companions… but they can also lead to issues in a number of ways.

1. Sharing a Lease

Anyone who’s so much as looked at a Craigslist housing ad in the past decade will likely breathe a sigh of relief at the idea of splitting the cost of rent, particularly in densely populated (but desirable) cities like New York or San Francisco.

But sharing a lease can also be problematic if your new flatmate doesn’t pull their weight.

First, there’s the problem of qualifying for the lease in the first place. If your landlord decides to pull credit and background checks for all proposed tenants, you might get rejected for your roommate’s past infractions — even if your history is squeaky clean.

And once you do get accepted, your roommate’s sphere of influence is only just beginning. Because if you’re both on the lease and they don’t pay up, you could risk being evicted if you can’t make up their share.

And getting evicted is more than just a serious inconvenience. Although an eviction itself doesn’t show up on your credit report, eviction-related information can. 

For example, if your landlord takes you to court and a judgment is issued against you, that judgment will have a place in your credit report’s public records section for up to seven years — and likely cause future would-be landlords to ask ask for an explanation, if not blackball you entirely.

Similarly, your roommate decides to move out early, you could be left footing the entire rental price… that is, if your landlord allows you to stay at all. A breach in the rental contract by any tenant could give your landlord the right to end the agreement altogether, which means you could find yourself facing your own unplanned move.

2. Splitting Utilities

Aside from the lease, there’s also the issue of keeping the lights on — and the water, internet and natural gas, if you’ve got it.

And while most utility companies don’t report to the major credit bureaus, if you fall seriously behind and the account goes to collections, that could definitely impact your credit.

There’s no one-size-fits-all answer to the question, “What does an account in collections do to my credit score?” The amount your score will drop depends on how high your score was when the collections attempts started, as well as how much money you owe. 

That said, having an account in collections does almost always drop your score, and often substantially — and that’s not to mention the day-to-day frustration of a collections agency calling you, emailing you, and sending you letters nonstop. 

It’s important to pay attention to whose name the utilities are in… though either scenario has its risks. If the utilities are in your name, it’s your credit report on the line if your roommate fails to cough up their portion. And if they’re in their name, you could end up without power or water, even if you fork over your share.

It’s equally important to understand what happens if you or your roommate moves out early. You don’t want to be stuck paying for services at an apartment you no longer live in, and you definitely don’t want your access to water and power to be controlled by an ex-roommate you might not be able to contact easily.

3. Paying for Damages

You might be the quiet type, content to spend your Saturday nights with your nose in a book. But if your roommate gets rowdy (or invites a bunch of people over who take the opportunity upon themselves), you could still be responsible for the damages that result. 

That could mean forgoing your security deposit (which is already unfun, considering they often match a full month’s rent), or even being financially culpable for repairs above and beyond that amount. Even seemingly simple repairs can be costly, not to mention the legal trouble you’ll end up with if your landlord sues.

FROM THE CREDIT FORUM

How to Protect Yourself if Roommate Won’t Pay Rent or Other Bills

As scary as all this may sound, don’t get us wrong: Having a roommate or three can be a great way to minimize your cost of housing, which is often the single largest line item in a budget.

And in all the ways your roommates can have a negative effect on your credit in the worst-case scenario, they also stand the chance to boost it: You’ll find it a whole lot easier to make on-time, in-full payments when you’re not responsible for the entirety of the cost.

So how can you avoid a ruinous roommate situation?

For one thing, you want to screen your roommates carefully — even if you’re considering moving in with old friends. (In fact, in many cases, close friends make poor roommates; it can be more difficult to set serious boundaries when you’re concerned about hurting one another’s feelings.) 

These days, there are lots of ways to pretty thoroughly vet a potential roommate online, if only through social media, but if you want to get really serious, you could ask for a background check of your own. 

You might also try asking your landlord if it’s possible to set up separate lease agreements, which will build in some protection against your being evicted if your roommate won’t pay rent or being responsible for your roommate’s poor behavior.

But when push comes to shove, there’s always some risk involved, so be sure to set a clear game plan and have those difficult “what-if” conversations upfront. After all, it may take an awkward hour or two to set up clear boundaries… but that black mark on your credit report could last for years.

Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool and other outlets. Learn more at www.jamiecattanach.com.