With mortgage interest rates historically low, many homebuyers and those looking to refinance are hoping to reduce their monthly mortgage payment. According to bankrate.com, interest rates for a 30-year fixed loan were holding steady around 5.32% for the first part of July. However, it is important to understand that most of the advertised mortgage interest rates are based on a FICO credit score of 700 and above, which does not apply to everyone.

Your FICO credit score is one of the most integral factors in determining what interest rate you qualify for. A FICO score is a statistical numeric score developed by the Fair Isaac Corporation based on a consumer’s credit history such as outstanding debt, timeliness of debt payments and other factors. The three credit reporting agencies used in order to see an individual’s credit history are Experian, Equifax and Trans Union. Lenders examine and utilize these scores in order to determine a person’s risk factor in repaying the debt.

How to find your score:

Experian, Equifax and Trans Union are required to provide one free credit report a year if requested. However, these reports give you an individual credit history but not your FICO credit score. If any misinformation is shown on any of the three reports, there is a dispute section provided in order to resolve the discrepancy. FICO scores can be purchased from Fair Isaac or other various credit agencies. Credit scores generally fall in the range of 350-800+ with 350 on the poor or low end and 800+ excellent or the highest rating.

How to improve your credit score:

The first step in taking charge and improving your credit score is to analyze your three credit reports in order to ensure an accurate credit history. Many individuals find small discrepancies that can make an impact on their score. Each report will provide a dispute section in which the discrepancy will be re-evaluated and changed if necessary. You will be notified by the agency of their decision to alter the disputed information or retain it on your report.

If your credit report is accurate and your credit rating could use improvement, here are some tips on improving your score:

• Be sure to make loan, credit and debt payments on time.
• Limit taking on new debt such as credit cards. Even if a credit card balance is at zero, credit reporting agencies still view it as potential debt.
• If you are having difficulty in making payments on time, call your creditor to make alternative payment arrangements. Do not ignore your bills since lenders will take action on your account regardless of your participation.
• Keep your debt low. Mortgage lenders will look at your debt to income ratio when considering a loan.
• Keep a low balance on credit cards. Even if you have a high credit limit, credit scores will take into consideration how much of a balance is being carried month to month.
• Be sure to limit the number of credit applications.

Building a good credit history takes time, diligence and awareness but the payoff could make a significant difference in your mortgage or car payment. Please visit myfico.com for more tips on improving your credit score.