Having a good credit history and score has long been an important factor in being able to obtain loans and credit cards; your credit score even factors in when you apply for a job or a rental place. In more recent times, as the economy is going through a recessionary period, having good credit has become more important than ever.

While Americans for the past two decades have enjoyed easy access to credit in general and credit cards in particular, the future for obtaining credit does not look as bright. Lenders, credit card issuers and other types of companies that extend credit to consumers are tightening guidelines for approval, making it harder to obtain credit. This is true for those who have low credit scores, but people who do not have a credit history at all find it just as difficult to get any form of financing.

This is why it’s important to take steps early on to establish a credit history and start building a great credit score. But that can be a Catch-22. You have to have credit to build credit. Without a credit history, lenders will be more reluctant to extend credit to you; unfortunately, without having some types of credit in your name, you can’t begin to establish a credit history.

The good news is that it is easier than ever before to establish a credit history. There are two main reasons for this. Firstly, because all information regarding your credit transactions are processed electronically nowadays, it doesn’t take as long to establish a credit history. While in the past, building credit could be a year-long process, nowadays, you can create enough of a credit trail to get a credit history and credit score in as little as six months.

The other factor that makes building credit easier than before is the ready availability of credit cards. Even though lending rules have tightened, credit cards remain one of the easiest types of credit to obtain, making them one of the best ways to give your credit history a jumpstart.

To build a credit history with a high credit score in the shortest time possible, follow these three simple steps:

1. Get credit. You can apply for a credit card online, however, if you’re just starting out, it may be easier for you to obtain a credit card through a bank with which you already have an account established. Many banks, both local and national, issue their own credit card; if this is the case for your bank, it’s a good place to start. If you are young, applying for a student credit card is another easy way to go, although you will need a cosigner if you’re under 18 (or under 21, once the new credit card rules step into effect in February 2010).

2. Manage credit. Once you have obtained a credit card, it’s important to use it responsibly. Charging manageable amounts, making your payments on time and paying off credit card balances instead of letting them accumulate are three of the key actions you need to take to show that you can manage credit. This in turn will help you build and maintain a good credit history.

3. Expand credit. Your credit score thrives on having various types of credit, so over time, apply for different types of credit—student loans, auto loans, mortgages, etc. Diversifying the type of credit you manage helps to build a credit history and improve your credit score. At the same time, however, don’t go deep into debt, have a mix of 2 to 3 different types of credit, but keep balances low.

These three steps together make up about 90% of your credit score. The fourth factor that comes into play is the length of your credit relationships, so the earlier you start building a credit history, the better. As the recession continues, lenders and creditors may continue to tighten lending criteria and make it harder to obtain credit, so if you haven’t already started building credit, now is a good time to start.

The three major credit bureaus that issue credit reports are Equifax, Experian, and Transunion. These companies collect, store, and sell the details of your credit history based on the information they obtain from smaller regional bureaus, or directly from credit card companies and other lenders.

You are allowed one free copy of your report per year from each of the three credit bureaus. In addition, you can get a free online credit report from Experian. Please click here for more information on how to obtain a free copy of your credit report.

1. Excellent credit — you have no debt, or your debt is relatively small compared to your income (the higher the income, the better, of course) and you have no reports of late payments or missed payments on your credit reports.
2. Good to average credit — your debt may be somewhat high compared to your income or you have 1 to several late payments, but no failures to make payments.

   The better your credit rating, the more likely your application will be approved. The credit cards we recommend for the above two categories are:

   Citi Cards
   American Express cards
   Discover cards
   Capital One cards
   Bank of America cards
   Advanta (business cards)

   To find out how you are rated by the credit reporting agencies, please visit the credit reports page.

3. Bad credit — your credit history includes high debt, default on payments, and present or past bankruptcy.

   There are banks which specialize in providing credit cards to people in this category. See credit cards for people with poor credit to find the card that meets your needs.

4. No Credit — no credit history, usually students and young people. There are credit cards which are geared for people in this category. See student credit cards and cards for people with poor credit or who want to build a credit history.

Click here for more information about your credit history and improving your credit score. Your credit history, amount of debt you carry, and your income is also important in determining the following:

1. The type of card you get approved for (Platinum, Gold, Standard, Secured etc.)
2. The credit limit you get approved for
3. Ongoing Annual Percentage Rate (APR). Some cards have a range of APR’s. The card issuer will assign you an APR depending on how you rate with them. Please read the “terms and conditions” for each card to find out its ongoing APR range. Some cards will offer one ongoing APR only.

Many federal and state laws put limits on what can be done with the information in your report. The Equal Credit Opportunity Act, for example, prohibits discrimination based on age, race, gender, marital status, religion, color, national origin, or the receipt of public aid. A creditor cannot use these factors to refuse you credit, allot you less credit or offer you different terms for which you otherwise might qualify. Other laws spell out similar restrictions for the use of the information in your credit report.

In addition, your credit report lists any recent inquiries made about your credit history. Every time you apply for a loan or credit card and the lender requests a copy of your credit report, that inquiry is noted in your credit history. Too many recent inquiries may lead the lender to conclude that you have a pressing need for credit. This can count against you in their decision.

One of the best ways to protect yourself against identity theft is to store all your personal information, including credit and debit cards, in a safe place. In addition, never give out your personal information to anyone, unless you are sure that they represent a legitimate company or service.

Review your credit reports regularly. This will alert you early on if you’ve been a victim of identity theft. It is also a good idea to enroll in a credit monitoring service, which gives you a number of tools to monitor, manage and protect your credit and identity information. This service involves a fee, so be sure you understand the terms and conditions before you sign up.

A high credit score and a good credit history will give you financial flexibility and can help lower your costs of living. If your credit score is lower, there are ways to improve it. The information on the next few pages will answer any questions you may have about your credit report and how to obtain a free copy of your report.