When you say "looking kind of ratty", do you mean the foliage is tattered/worn? If so, then it will be putting out new foliage soon, similar to a daylily. You could mow it to remove some of the old foliage.

But if you mean that it is sparse, then you might want to add some new plugs to the sparse areas.

Either way, a little light fertilizer should not hurt. I would not aerate it.

Don't aerate. It's not turf grass. It's individual plants that spread underground. Most landscapers and gardners cut back mondo in late winter/early spring to get rid of last years growth. New growth will be coming up now. You can mow it or trim it with a string trimmer. The new growth will be health and green. Fertilize if you want to.

The foilage is a little ragged and some of the foilage is yellowish, possibly a little damage from the drought as well. We plan on spreading a thin coating of compost over the area and then plugging in some areas next week. We have been in the house for a year and a half and have never mowed, it really can't be mowed, it is too low.
We have alo never fertilized the area, maybe the compost will be enough?

Oh sure, the compost will be good.

You can always take scissors and clip away the worst looking blades (like the yellow ones) if they are not too many. Otherwise, consider a string trimmer like buford said.