Your credit score plays a crucial role when applying for any type of credit, particularly a home loan. A steady income and low expenses alone won't help financial institutions assess the risk of lending to you for a home loan. If you're considering buying a house with a poor credit score, there are important factors you should address before applying for a loan.

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Owning a home is a common aspiration, alongside other major life goals like going on a dream vacation or buying a new car. These goals often require substantial financial resources. Despite saving diligently, many people find themselves needing additional credit to achieve these objectives.

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If you're starting the process of buying a home with a low credit score, it's crucial to understand that securing favourable interest rates might be challenging. A credit score in the “Good” range will typically afford you better interest rates from lenders, due to the lower risk associated.

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Here's a breakdown of how credit scores impact lending:

• High Credit Score: Lower risk for lenders, leading to lower interest rates.
• Low Credit Score: Higher risk for lenders, resulting in higher interest rates.

With a poor credit score, it’s advisable to focus on improving your score before applying for a home loan. A higher score will help you secure loans with lower interest rates, potentially saving you a significant amount in the long run.

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Improving your credit score takes time and effort. Some people see an increase of 200 points in a month, while others may take a year to achieve a similar boost. The time required depends on your financial habits and efforts.

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Here are some steps to improve your credit score:

1. Make timely payments: Always pay your debts on time. Consistently missing payments can damage your credit score. If you miss a payment, contact your credit card provider or lender to explain the situation, as they might remove late fees. Setting up automatic payments can help ensure you never miss a due date.
2. Pay the full amount: Instead of paying just the minimum due, pay off the full amount on your credit card. Paying only the minimum may avoid late fees but will accrue interest, leading to increased debt and negatively affecting your credit score.
3. Reduce credit utilisation: This ratio represents how much credit you're using compared to your total credit limit. Aim to keep this below 30%. The lower your credit utilisation, the better it is for your score.
4. Regularly check your credit report: Monitoring your credit report helps you spot any inaccuracies or fraudulent activities. For instance, if your personal information is misused by scammers, you'll only notice this through regular credit report checks.
5. Diversify your credit portfolio: Adding different types of credit, if managed responsibly, can positively impact your credit score. However, only take on new debt if you're confident in your ability to manage it effectively.

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Your credit score is a vital part of your financial identity. Maintaining a good score is essential for securing loans at favourable rates, obtaining credit cards with desirable limits, and even for employment opportunities. Before applying for a home loan, invest time in improving your credit score to avoid higher interest rates and better manage your long-term financial commitments.