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Here's why millennials should think about using credit cards more

It’s nearly eight years after the recession, and millennials are still tiptoeing around credit cards. New research from Bankrate.com reveals 64 percent of millennials don’t have one.

Why not? Mike Cetera, personal loans and credit analyst for Bankrate.com, says there are two reasons. The first is fear. Millennials recall their older peers and relatives having tremendous amounts of debt during the recession and they don’t want to be tempted to overspend.

The second is that they don't see the need ... yet.

“[Millennials say] I know I need to establish a credit history and have a credit score in order to get a mortgage or auto loan, but I’m not there yet, so I don’t really feel the need to start laying the groundwork for it,” says Cetera. The problem with the latter is that you can't build a credit history overnight. And not only do you need a strong history for a car or home loan, you need one to rent an apartment and sometimes even get a job.

Here’s what you need to do to jump on the credit bandwagon:

Check your credit score and pull your report

According to the Consumer Federation of America, compared to Gen-Xers, millennials are less likely to check their credit scores and reports — and that's unfortunate because it's the place to start. (You can check your report for free at annualcreditreport.com and your score for free at mybankrate.com and savvymoney.com.) Consider it your financial GPA, says Ken Chaplin, senior vice president of credit bureau TransUnion, and don’t be too surprised if it’s low.

Read more: Get your finances in order right now with these 5 free apps

“What tends to happen for people who aren’t credit active — or don’t have a credit history — they’re grouped into what’s called thin files,” says Chaplin. “What that means is there isn’t enough information for the [scoring] model to appropriately score them.”

In other words, that low score isn't for bad behavior, it's for not enough behavior. Once you start building credit, it should go up.

Start where everybody knows your name

So, how do you get started? Apply for a credit card. Use comparison tools on sites like creditcards.com, cardhub.com and nerdwallet.com to find cards with low interest rates and no annual fees. If you're turned down, approach your current bank or credit union.

“They have an established relationship with you so they may offer you a credit product,” says Cetera. Even if your thin file is giving you a low score, Chaplin says not to panic — credit card issuers take your age into account.

Go the secured or authorized route

If you get turned down at an institution where you already have a relationship, consider applying for a secured card. A secured card requires you to deposit a few hundred dollars (typically) with the issuing bank; that money then becomes your credit limit. It sits in the bank as collateral while you go about the business of spending and paying your bills on time.

Read more: Jean Chatzky's 3 ways to make money last through retirement

Then, after about 18 months of good behavior, many of these cards will turn into a regular credit card. Another option is to be added to the card of a parent as an authorized user. (Parents: As long the card reports to the credit bureaus, doing this for your college-age kids is one way to make sure they’ll emerge with a credit history. Also know that some card companies allow you to set separate limits on the authorized user’s card. Ask.)

Practice healthy credit habits

Once you receive your first card, get on the fast track for raising your three-digit number by using it wisely and sparingly. “There isn’t a magic bullet,” says Chaplin. Charge a small amount to the card and pay it off, in full, every single month. You’ll build your credit reputation by showing you can be trusted to buy something with credit and pay it back on time.

Your payment history — or on-time payments — account for 35 percent of your credit score. The second largest factor, your utilization ratio (or the balance you carry and how it compares to the credit line you’ve been issued) accounts for 30 percent of your score. You want to keep your ratio at or below 30 percent, which means on a card with a $1,000 limit, your balance should never cross the $300 line.

--- with Kelly Hultgren

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