5 people who check your credit

Now both are ready to buy homes, and they each apply for a $250,000 30-year mortgage. Through Jim's responsibility, he's been able to build a score of 750, qualifying him for a loan with a 6.2% interest rate, according to Fair Isaac, the scoring bureau. Mark's score comes in around 650, netting him a rate at 7.3% interest. Jim's monthly mortgage payment is $1,536 while Mark pays $1,718 -- a difference of $182 per month. If they both live in their homes for 10 years before selling or refinancing, Mark will pay $21,840 more in monthly payments than his friend. Ouch.

Mark also gets burned on a new auto loan -- paying $1,332 more over three years on a $20,000 loan than Jim. Plus, Mark probably paid much more for his car insurance than Jim.

How to get started

Even if you don't plan on applying for a loan or getting a new apartment or a new insurance policy anytime soon, it's a good idea to start building your credit score now so it's there when you need it.

When you're starting from scratch, a good place to begin is in college. Janet Bodnar, Kiplinger.com's Money Smart Kids columnist, advises students to get one credit card their junior or senior year, use it occasionally and pay off the balance each month. It's much easier to qualify for a credit card while you're in school than after you graduate (lenders figure that Mom and Dad will bail you out while you're in college if you can't pay your bill).

If you're already out of school, or you don't trust yourself with a full-fledged credit card yet, a secured card will help you get off on the right foot. This card allows you to make a deposit with a lender (such as your bank or credit union), and the amount usually becomes your credit limit. The issuer takes on zero risk because if you don't pay on time, it can dip into your account to cover the bill. Most issuers require a deposit of $300 to $5,000. You build a history just as fast with a secured card as with a regular one. And after making payments on time for a year with a secured card, you should have an adequate history to switch to an unsecured card and get your deposit back.

Changes to the FICO scoring system can help young adults trying to build a credit history. The changes are based on alternative data such as whether you pay your electric bill on time and maintain a clean checking account. So you'd do well to keep all areas of your finances in tiptop shape.

Boost your score

Knowing what goes into your credit score can help you manage your debts well. Here's how to make the best impression on your credit history:

• Pay on time. 35% of your score depends on your payment history.
• Don't max out your cards. 30% of your score is based on how much you owe. You want to keep your "credit utilization" ratio -- the percentage of your credit limit that you've actually used -- no higher than 30% of your available credit limit. And pay off the balance in full every month.
• Start while you're young. 15% depends on the average age of your accounts.
• Avoid opening several accounts at once. Not only will this lower the average age of your accounts, but lenders will worry that you might go on a borrowing binge. 10% of your score depends on new credit.
• Get the right kind of credit. This accounts for the final 10% of your score. Your experience with revolving credit, such as credit cards, on which you control how much you charge and pay off each month, carries more weight than installment debt, such as car loans and mortgages, with fixed payments. But don't simply stock up on a pocketful of Visas -- lenders like to see that your money skills are well rounded.

This article was reported and written by Erin Burt for Kiplinger's Personal Finance Magazine.

Updated March 10, 2009

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