Whether you are a first-time home buyer or you are planning to refinance your existing home loan, it is important to understand how your credit history influences the process. When you are being considered for a loan, the lender looks at your past payment history, the amount of credit you have outstanding and the amount of credit you have available — a snapshot of you as a borrower.

Mortgage lenders rely either on a consumer's credit score, such as a FICO score developed by Fair, Isaacs & Company, or use a combination of FICO score and other factors to price a loan.

Credit bureau information is used to obtain a number that represents how likely you are to make your loan payments on time. FICO scores range from approximately 250 to 900, and in general, higher scores predict timely mortgage payments.

Your credit history directly affects the interest rate and fees (or points) a lender charges. Consumers with the best credit generally pay the lowest amount for a home loan. Building and maintaining strong scores may be as simple as improving your credit profile. Recommendations for doing so include:

Making timely payments each month. The best way to increase a credit score is to pay bills on time.

Paying off outstanding debt and limiting the amount of credit you use. Lowering balances on credit cards and lines, and keeping them low, raises a credit score.

Requesting a lower credit limit on current credit cards to avoid high credit limits. High credit limits relative to income can adversely affect a score.

Closing credit accounts limits the number of credit lines. An obligation to pay multiple accounts lowers a credit score. By consolidating debt onto two or three credit lines and canceling other accounts, scores can be raised.

Checking credit reports periodically. Incorrect credit information in a credit bureau file may lower a credit score. The three major bureaus who provide reports for a small fee are Equifax (800-405-0081), Experian (800-682-7654) and TransUnion (800-888-4213).

Not applying for credit you don't need. Whenever you apply for credit, the creditor will obtain a credit report from one or more of the three credit bureaus. Each such inquiry stays on your record and affects your score. This is because each inquiry suggests that you are increasing the amount of credit available to you.

While it may seem intimidating at first, understanding and improving your credit score is easier than you might think. And the time and effort you invest can pay off handsomely in lower home loan rates, lower monthly housing expenses and better loan terms.

(Frank Salazar is the home loans manager of the Oxnard office of Countrywide Home Loans, a division of Countrywide Bank, FSB. He can be reached at 312-3964.)