Your credit can determine what you can buy, what type of car you drive, your insurance rate and even where you can live and work. Therefore, it is important to build and maintain the best possible credit history.

Having poor credit, little or no established credit or unresolved disputes with creditors can affect your purchasing power and your ability to get the best loan for you.

There are many reasons why you might be denied credit. You may not have enough credit history for a lender to make a judgment from, or you may have a full but complicated credit history that needs to be presented in a more positive light.

Building Good Credit Tip 1: Know the 20 percent rule

Borrow no more than 20 percent of your income. To attain this figure, add up all your short-term debts, like installment loans and credit card balances, outstanding telephone bills if they are large, and notes due in a year or so. Exclude your long-term debts, such as mortgages. Then figure your annual income from all sources. Divide your annual income into your total short-term debts.

If the answer is 0.20 or greater, then you are borrowed to the limit that is generally considered safe, referred to as the 20% rule. If you are below 0.20, then theoretically you can borrow an amount which, when added to your short-term debt and divided by your annual income, would yield 0.20, or 20 percent.

For example, if your annual income is $50,000 and your short-term debt is $10,000, you are at the 20 percent level and are pretty well borrowed to your limit. But if your short-term debt is only $4,000, then you may have about $6,000 available to borrow.

While building good credit, please don't be pulled in by the endless offers of credit cards and loans. Apply only for the amount of credit you can handle.

2: Accentuate the positive

When applying for credit, emphasize why the credit should be granted. It is important to capitalize on your strong points by making them the focus of your credit strategy.

A good income history is one of the strongest points you can make. A good track record at the credit bureaus, with your banking institution and with creditors such as the telephone company and utilities goes a long way toward making you look good. Lenders like to see evidence of earning power over a period of time, as well as a consistent record of making payments on time.

When you are filling out your applications for credit, notice that requests for information are much the same from application to application.

While you must answer all questions truthfully and completely, there are often different ways the same question can be honestly answered. Choose the way that is most favorable to you while building good credit.

When filling out credit applications, emphasize those features of your credit record that indicate your credit strength.

Be careful, though, since credit fraud is a serious offense. However, being selective is not being dishonest. Lenders are aware of how financial data can be arranged to appear better or worse. They expect you to put your best foot forward, within reason. If you don't, they may believe your financial situation is worse then it actually is.

For example, if you fail to check out your credit references and someone you list provides a poor reference, the lender is likely to conclude that was the best you could do.

Building Good Credit Tip 3: Get a secured credit card

If you don't yet qualify for an ordinary or unsecured credit card, while building good credit you can obtain a secured Visa or MasterCard. A secured credit card is the doorway to establishing a track record of creditworthiness in a very short amount of time.

A secured credit card has a credit limit based on your cash deposit. A minimum deposit must be kept in a savings account and you only have partial access to this money. In other words, your credit line will vary from 50 percent to 100 percent of the minimum deposit secured by your savings account balance, which you agree to leave untouched while you have the secured credit card.

An annual fee will probably be charged for the card. The annual percentage rate may be lower than the industry average, though, since it is backed by collateral. However, some institutions charge an additional processing fee that may be refundable if the card is not granted.

Never be dishonest when filling out an application for credit. To knowingly misrepresent yourself on a credit application is fraud and punishable by law.

Secured cards look exactly the same as ordinary cards so no one is likely to suspect that your card is secured unless you tell them and while you are building good credit a secured card is like gold.

The best places to obtain secured credit cards are through the highly competitive big national banks, your own local bank where you have cultivated the trust of the loan officer, or savings and loan institutions in your state. The Savings and loans will vary widely in their policies, but are worth a try.

4: Get a retailer’s credit card

Apply for credit from local and national retailers. You need only a few of these cards to establish a good credit record. In many cases, your secured Visa or MasterCard will get you almost instant approval for a department store credit card or charge account.

It is often easiest to win credit from retailers. Use their references while building good credit to secure additional credit from others once you have established your creditworthiness.

Building Good Credit Tip 5: Open a checking account

Once you have chosen a bank you would like to work with, establish credit with a checking account. Make your initial deposit as large as possible. During the next few months, when potential lenders check your credit with your bank, they will learn only of your initial deposit.

After a few months of deposits and withdrawals, your average daily balance for the month will be reported to creditors who request credit information.

If you don't have the cash on hand to open this account yourself, borrow from relatives or friends. While building good credit this will be a short-term loan and you can pay it back in the form of a check once the account is established. Start off on the right step: Keep this new account balanced and never overdraw your account.