Using credit wisely is one way to build financial health and reach your financial goals. In fact, access to credit plays a vital role in improving your life. But just because credit is offered or available doesn’t always mean it’s helpful to take. Debt can weaken your finances or limit your options. To make good decisions, the key is understanding when and how to make credit work for you — and not against you.

When Credit Can Help Your Financial Life

Credit can help in a variety of ways, including allowing you to quickly handle an emergency expense or buy the car of your choice.

For example, say you need to see the dentist to have a cavity filled. It will cost $300, but you don’t have the cash to pay for it right now. You could wait until you save the amount you need — and then schedule the appointment. But waiting could make the problem and the pain worse. Then, instead of a $300 cavity, you may need a $2,000 root canal.

Credit in this situation is serving its purpose. Carrying a small balance on a credit card, for a short time, to pay for needed dental care gives you a better, less costly alternative than waiting — and potentially creating a more expensive issue.

Building your credit score

Using credit as a payment tool — charging some of your monthly purchases and paying in full when the bill arrives — will help build and maintain a solid record of responsible credit management. Since most credit cards report payment history to the three major credit bureaus, making payments on time and in full shows a pattern of responsible borrowing and can help improve your credit score. For example, a simple way to build a strong credit score would be to automate a single, recurring bill payment on a credit card.

In addition, paying with credit can help you keep track of spending and earn valuable rewards. How? Some credit cards will automatically sort your purchases on your statements, organizing them into categories that give you a budget snapshot. Many cards also come with online tools that can help chart your expenses. And using category-specific cards that pair well with each other can allow you to earn the most valuable rewards in key spending categories, such as gas and groceries.

Financing an important goal that grows in value

Having a strong credit history can assist you in achieving future financial goals. Taking out a mortgage with low interest rates, for example, can help you own a home, build wealth over time and improve your quality of life. In a similar way, financing educational goals through low-interest student loans can enhance job opportunities, which may increase your earning potential.

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When Credit Can Hinder Your Financial Life

Every time you use credit, you’re contributing to your financial reputation. Below are a few situations where using credit can ultimately cost you.

Paying more for purchases than what they cost

If you buy something on credit and don’t pay it off right away, you’ll end up paying not only the purchase price but also the interest. In other words, carry a balance and all your purchases will end up costing you a little more. Interest, finance charges, annual fees and penalties can dramatically increase the cost of any purchase made on credit.

Say you put a $3,000 purchase on a credit card with an annual interest rate of 14%, and you pay the minimum due of $100 per month. It would take about 38 months to pay off the balance, and you’d be paying more than $700 in additional interest — almost a quarter of the original cost.

Falling for teaser offers and frequently accessing credit

A low or 0% interest rate may seem like a great deal, but many people are surprised to find that the rate is only a temporary, “teaser” rate to attract new customers. If you don’t read the fine print, you may pay far more in interest than you expected when, say, a 1% APR balloons to 26% before you have a chance to pay it off.

What’s more, repeatedly accessing your credit increases the number of outstanding accounts you have and decreases the average age of your credit history — both of which can negatively affect your credit score. Requesting multiple new lines of credit in a short period of time can also be a red flag to lenders who are deciding whether to approve you for financing for a longer-term goal.

Using Credit Wisely

The key is knowing when credit is most useful to you — and when it’s not. Think of it like using a power tool to do a hand tool’s job. You wouldn’t use a nail gun to hang a photo on the wall when a quick tap with a rubber hammer will do the trick. In other words, credit will be the appropriate choice in certain situations, but not others. Credit is a powerful tool when used wisely because it can help you pursue and achieve some of life’s key financial milestones.