it said my phone passwords have been found in a known data leak should i trust it

Should you trust that servers are breached and that passwords are leaked, and that password re-use is a serious problem, and that bad passwords can be selected? Absolutely. Server breaches are commonplace, and are leveraged to breach other logins at other services.

Should you trust any unknown messages? Some skepticism there is warranted and entirely appropriate.

What to do here? Settings > Passwords > Security Recommendations, and have a look around at what is shown there, and start resolving the worst of what’s shown working through to the lesser issues.

And enable two-factor authentication on your critical accounts, including your Apple ID. Apple ID compromises get seriously ugly.

Here is Apple’s explanation of how this works→Password security recommendations - Apple Support