One of the most common misconceptions there is about rebuilding credit is that you have to go back and pay everyone you owe money to every single dime that you owe them. This simply is not true. In fact, if your debts are more than four years old, you do not want to pay them off. Why? New negative credit files carry more weight on your credit report than old ones. This means that your time and money is best spent on building credibility and new positive credit files than it is on cleaning up ancient history.



Past due notices and accounts recently placed in collection do the most damage to your credit score. If you are just starting out or trying to rebuild your credit after a financial blow, it is extremely important to pay attention to how you are managing your current bills.

Here are a few tips:

* Open a savings account and a checking account.

Make regular deposits in each and follow your budget closely. Do not bounce your accounts and take great care to keep a close eye on what is going on in each account at all times. Keep in mind that your savings account should always increase in value, never decrease.

* Pay all bills on time. Every bill, no matter how small, can end up on your credit report if you do not pay it. Pay everything on time including bills for magazine subscriptions, mail order merchandise, doctor visits, utilities and insurance.

* Piggyback credit. Ask your parents or an older relative if they will allow you to be a card holder on one of their credit card accounts. You do not have to use the card. They do not even have to let you carry the actual credit card. By being on their account, their credit account information shows up on your credit report. If they pay the account on time, it is a positive boost to your credit standing.

Building credibility is all about establishing a good name for yourself. Pay your rent on time and strive to be an excellent tenant and employee. The more that you do and do well, the better off you will be financially.

Do not worry if you have made mistakes in the past that have affected your credit. Negative credit history can only stay on your report for seven years. After four years, creditors lose the ability to file a suit against you in most states.

This does not mean that you should completely ignore your past debts. There are certain circumstances where it pays to pay off or settle your old debts. But you should strive to build your credibility and to honor current bills and debts first. Never pay off an old bill with money that you need to pay a bill that is due today. Doing so will result in a new negative file being added to your credit report which will only add time to your bad credit sentence.