There’s a great “catch-22” for building credit. You can’t build or improve credit without a good credit history, but you can’t have a good credit history without having a credit “past”. Having a credit card gives you a distinct advantage over non-credit cardholders. Your credit card provides a way for lenders to know how financially responsible you are. It's difficult to get a mortgage or a car or business loan unless you have sufficient credit history. How can you build good credit?

Secured Cards

One of the best ways for people to get their first card is with a "secured card." These MasterCard and Visa cards look just like regular credit cards, but they come with one key difference -- a secured card is backed (or secured) by money you have on deposit with the issuing bank. The money securing the card can be in a savings account, bank money-market fund or a certificate of deposit (CD).

The credit line on a secured card is typically 50% to 100% of the amount you have on deposit; in other words, your collateral. So, the more you keep on deposit with the bank, the more you can charge on your secured credit card. However, some banks will grant a credit line of 150% to 200% of the dollar amount in the account. Obviously, being limited to charging only what you and the bank know you can afford will keep you out of debt. Another plus: Many banks pay interest on the money you have on deposit, currently up to 4%. Secured cards have opening minimums ranging from $300 to $500, or even $1,000, although a few require only $250.

Make sure the credit card reports to one of the three major credit card bureaus: Equifax, Transunion, and Experian.

Retailers Credit

Another way to develop a credit history so you will eventually qualify for a standard credit card: (1) Get an oil-company card or (2) apply for a department-store charge card with a local retailer or a major company such as JC Penney or Sears. Again, make sure the issuer reports your timely payments to one of the three major credit bureaus.

Take Out a Secured Loan

Another great, easy way to establish good credit is by taking out a few secured loans. Go to your bank and deposit $500.00 in a savings account. Wait a few weeks and return to the bank. Ask the lender to allow you to take out a loan against that account. Pay the loan back slowly, at about 50.00/ a month. This will help give you a good track record of making payments over a short period of time.

Make Sure it Counts

After applying several of these methods, wait several months and order your credit report. See if the companies you borrow from are listed, If not, call the issuing bank and ask them to report on your payments to the credit bureaus. This should get your credit rating in shape for the eyes of future creditors.