How do I begin to build a good credit record?

To answer this question, let's go back to the very first time you applied for credit. When you completed your first credit application and it was sent in to the appropriate place, the issuer contacted one or more of the three major credit bureaus (Equifax, Experian and TransUnion).

When they discovered there was no past history for you, they started a new file on you, and the bureaus who were not contacted found out about you and started their own files.

Once this is established and you begin making payments (or not making payments, whichever the case may be), your credit history takes shape. Over time, your files get larger and there is a larger sample size from which to draw.

So to build a credit record, one must first apply for credit and go on from there. If you are just starting out, a secured credit card can be a good choice. In this instance, a person places a security deposit with his or her financial institution of choice and gets a credit card with a similar balance. Just be sure to pick a card that reports to the credit bureaus or it's pointless. (source)

Sometimes, beginners are denied credit simply because their credit history is deemed too "thin." This simply means that there isn't enough history there to get a good read on the person, and therefore they are considered too risky.

At first, this can be a bit of a vicious cycle because, well, sometimes you have to have credit in order to get credit. Let us explain: An expert would tell you that if your credit file is too thin, you should simply apply for more credit ... but then you get turned down for more credit because your file is too thin. It can be frustrating!

So what do you do? You ask for help! If you have a parent who has a good credit history, you could ask them if they'd be willing to name you as an authorized user on their account – or if you're recently married you might ask your spouse if he or she has a better score than you. Over time, as you make regular on-time payments your score will go up – and so will theirs.

You should also know that a debit card – one that is tied to a checking account – is not going to work here. When you use your debit card, the amount of your purchase is being drawn against the balance in your account. Since it's your own money, this will not be reported. If you're doing this to improve your credit score, you must have something like a credit card or loan from an issuer that reports to the credit bureaus.

The bottom line is that lenders want to see people who have a little bit of debt, because they want to be able to gauge how you manage that debt. But be careful and don't go too far the other way and get too much credit, because that can actually hurt you. Why? The amount owed to available credit limit ratio is an important factor in how your FICO score is determined. (source)