The most important thing you can do when building credit is to always pay your bills on time and to never borrow more than you can afford to pay back. It sounds silly for me to say, but unfortunately people do this every day. Credit is enticing and it very easy to get in over your head. Beware because those "no money down" and pre-approved credit card offers can send us straight down the credit road of darkness! It's essential when building a healthy credit report that you remember your long term goals, and resist the temptation of buying yet another thing on credit.

Today, it's more important than ever to have a good credit rating. Don't get me wrong it has always been important to have good credit if you want to buy a car, a house, rent an apartment, or be approved for personal loans or credit cards. However, today more and more employers are looking at credit reports as part of background checks, and insurance companies are considering them when deciding whether or not to extend coverage.

Having good credit means you have established credit, which stated simply means that you have borrowed money or used a credit card and then re-paid it in a timely manner and not extended your credit limits. Don't be fooled into thinking no credit is good credit. It's just that "no credit" which means you have no established track record. (good or bad) Additionally, it means not overextending yourself and applying for credit that you won't be able to pay back. One little tip; don't “shop” for credit because every time you apply for a credit card it shows the action as an inquiry on your report. Too many of those make you look like a high risk to other lenders!

As a young adult, using a cellular phone and paying your bills on time is a good way to start building a good credit report. In addition, there are many special credit card offers for students and young adults specifically designed to get a credit history started, and using the card and paying it on time is one of the best ways to establish excellent credit. Paying more than the minimum payment, or even paying the full balance, is also a very good idea.

An excellent way to build strong credit is with a car loan. Most cars aren't cheap, so by having a large balance and then paying it on time every month will do wonders for your credit. You'll need to establish sufficient credit in order to be able to borrow money and finance the car, but making other payments on time – such as the ones mentioned above – and being gainfully employed will allow you to do so.

Now that we have you buying things and spending money, it's time to monitor your credit and make sure all is well. Request a copy of your credit report once a year, from each credit bureau. It's important to know which of your accounts show up on which reports, and to make sure that they are all accurate. It's fine to increase spending and credit as long you don't overextend, and make sure to cancel any card you are not using immediately. If you find mistakes on your credit report, make sure to follow the bureau's instructions to challenge it, in writing. If you follow these steps, you can get your credit rating up to an AAA status and keep it there.