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Why millennials should not be afraid of credit cards

Credit cards aren't scary — or, at least, they don't have to be if you're using them correctly.

So why do millennials tend to shy away from plastic? Mostly because, since the 2008 financial crisis, credit cards and debt are seen as an easy way to fall down the rabbit hole of financial despair. But saying no to credit means millennials are missing out on an important part of their financial health.

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While a daunting task for many, establishing credit at a young age is imperative for financial longevity. Here are seven tips for millennials to help them efficiently establish credit and remove the fear associated with the four-letter word: debt.

1. Get a credit card. Which came first, the credit or the credit card? It's a common catch-22: You need to establish credit in order to get credit, and although your first card will come with a seemingly minute limit, you have to start somewhere. The earlier you start, the easier it will be in the future to purchase things, such as a new car or your first home. Plus, establishing a relationship with your bank early on will make getting loans or mortgages later in life less of a daunting task.

2. Start simple. Use your credit card for fixed costs, such as your gym membership, cell phone bill, Wi-Fi, Netflix and/or groceries. You're already spending that money every month, so you'll know the exact amount you need to pay off, and you might as well improve your credit rating while you're at it. Set up your bank's credit card autopay to handle the bills for you, and never miss a payment.

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3. Treat it like your debit card. The best way to not overspend is to keep a watchful eye on your accounts and only charge what you know you can pay off. Always make sure the amount you owe on your credit card is less than the amount you have in your debit account.

4. Get an ugly credit card. Don't be tempted by fancy cards with hidden fees and seemingly beneficial rewards. Get a basic credit card that doesn't encourage you to use it for more than you need to.

5. Don't let the points fool you. Credit card points are a great perk, but they're also an incentive to spend more. It's a slippery slope when you get hooked on earning points and end up paying 20 percent interest on each of your purchases. Instead, think of the points as an added bonus. Let them stack up naturally, and use them to buy necessities, such as grocery or gas cards.

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6. Get your own card. If you are an authorized user on a partner's credit card, you are not building your own credit. If you want to increase your credit score on a shared card, you must apply for a joint account. Keep in mind that even the most promising relationships may not last forever, so make sure the time and money you spend building up your shared credit card won't be in vain. Get a card in your name as early as you can, and keep it forever — longevity affects your credit score.

7. Keep your number safe. Treat your credit card number like a prized possession. Don't lend it out, don't forget it at bars, and always keep it close to protect it from fraud. Be careful what machines you use it at, and watch it when it's being swiped. Fraud can happen in seconds, and getting your card up and running again can take months.

The bottom line is that credit cards aren't as scary as they're made out to be. If you treat them nicely, they can actually help set the foundation for a healthy financial future. Love your credit cards from the beginning and they'll love you back with apartment approvals, home loans and new cars when you're ready for them.

— By David Lester, managing director of Brightworks

Financial Advisors

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