Let's back up a little first. There are three main credit reporting agencies. They are Equifax, Experian and TransUnion. Only certain types of companies and types of actions are reported to them. Companies that report credit information to these credit agencies include banks, financing companies such as for cars, and credit card companies including those connected with retailers. Types of information that are provided to the credit reporting agencies include how much credit is available to you, how much of the credit you use, and how timely you pay.

Different weights adding up to 100% are assigned to credit issues such as payment history, amount of outstanding credit in relation to the amount you use, length of time you've used credit, recent/new credit, and types of credit used.

Credit scores are calculated using this information to evaluate a person's creditworthiness without bias or discrimination since objective data is used. The actual score or number calculated may be slightly different from agency to agency because some credit card companies may only report to two of the agencies and not all three.

The important thing is to be firmly planted in the "very good" or "excellent" categories to get the best (i.e. lowest) rates on mortgages, credit cards, and other debt. Don't be afraid to call your bank and specifically ask them for a better rate based on an excellent credit score.

To start building credit, you can easily and quickly open an account at your favorite department store. If you're going to buy a major appliance or electronic item such as a big screen LCD, consider opening an account with the retailer or most likely, with a financing company associated with the retailer. You'll most likely also receive better payment terms this way, too, such as no interest for a period of time, a year or more to repay, and other variations.

You may also consider applying for a general purpose credit card such as Visa or MasterCard. The main myth to debunk is that you have to go into debt to get debt. Go ahead and pay off your credit cards in full every month. You'll still build credit, and great credit at that.

Of course if you finance a home with a mortgage, try to make your payments on time to build up great credit. The same goes for buying a car. Buy the car by financing it with a loan (and down payment if you can) to get better payment terms. Again, it's all right if you pay it off early because you'll still be building credit, and great credit.