If there's anything to be learned from the financial crisis of the past year, it's that good credit is essential for good loans. If you have bad credit, improving your score is the best way to get a mortgage refinance.

These days, mortgage rates are at historic lows. Before you scamper down to the nearest lending institution and fill out a mortgage application, stop and take a deep breath. The key to a smooth mortgage refinance is entering into the transaction with a high FICO score. Lenders have little or no patience for someone who's a credit risk.

Be proactive with your credit score

Begin by getting a copy of your credit report, and take a look at your FICO score. Next, call a lender and ask what score you'll need to enter into the top tier loans for people with good credit. If they tell you a number that's dramatically different from your own credit score, you need to take action. Here are some helpful hints.

Start paying your bills on time. This should go without saying but, for many people, it's a hurdle that they're too undisciplined to overcome. The key to paying bills on time is to establish a system. Set up a regular schedule for paying bills, and stick to it. To really boost your credit score, pay off the entire balance of your credit cards each month. The less debt you're carrying, the better your score will be.

Avoid maxing out your credit limit. It's always flattering to get a card with a hefty credit limit. But don't let your ego distort the picture. Credit card companies are eager to lend you as much money as possible. They want you to get in over your head so that eventually you'll start paying finance charges and lining their pockets. To avoid this conundrum, always keep your balance at 50 percent or less of your credit limit. The credit bureaus don't like people reaching their limit because it makes them seem desperate.

Get your credit report and check for errors. It may seem like it's not a big deal, but it is: mistakes on a credit bureau report can be a deal breaker. You can get a free report from each one of the bureaus by visiting www.annualcreditreport.com. The three bureaus-Equifax, Experian, and TransUnion-are required by law to give you one free report every year. Spread them out over the course of the year so that you can pull one from each bureau every four months. Then, when you get the report, scrutinize it for errors.

Improving your credit score can save you money and move you quickly on the road to a mortgage refinance approval. Follow the steps above and you should see your credit score improve and your mortgage application accepted. A word of caution: Most of the solutions aren't quick fixes. You'll need to be financially responsible to get that credit score back where it belongs.

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Published on March 19, 2008