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Credit cards are awfully tempting.

Hand over your card, get your new designer jeans in return, and your wallet stays just as full as it was before you made your purchase. Who can resist?

Not many of us, it appears. According to a nationwide survey by LearnVest and Chase Blueprint (.pdf file), the average respondent had $5,000 in credit card debt and confessed that that debt was the biggest obstacle standing between her and her financial goals.

But there are also plenty of people who use credit responsibly: They’re men and women who live below their means, own just a few credit cards and rarely if ever carry a balance from month to month.

And, when they're used that way, credit cards can be very good things. In fact, credit cards can actually benefit your finances in several ways, from helping you budget to scoring you free stuff.

To find out exactly when a credit card can help you, read on.

1. Protecting your accounts

One nice thing about using a credit card is that it keeps an electronic record of your activities. This can come in handy both for tracking your spending and when something goes wrong -- say, if your card is lost or stolen.

Credit cards have a few built-in protections that cash (and checks) don’t. One of these is fraud protection. Most credit card issuers won’t hold you accountable for purchases made with your card by someone other than you. Plus, it’s much easier to call and cancel or freeze a credit card than it is to cancel checks and change your bank accounts.

2. Improving your credit scores

Your credit scores, numbers that typically run from 300 to 850 and that serve as indicators of your trustworthiness to lenders, are based on how reliably and consistently you use credit. They're not calculated simply by having a card (although that is part of it). Your scores are calculated based on several factors:

  • Percentage of on-time payments.
  • Open credit card utilization.
  • Derogatory marks, such as accounts in collections or bankruptcies.
  • Average age of open credit accounts.
  • Total number of accounts.
  • Total hard credit inquiries.

By regularly using a few cards and consistently paying them off in full, as well as staying comfortably within your credit limit, you’re well on your way to good credit. For more information on how these factors affect your credit scores, and how you can use them to your advantage, see LearnVest's Credit Scores 101 guide.

3. Securing retail discounts

If you have large purchases planned, or if you’re a loyal customer at a specific store, keep an eye out for specialty credit offers. Some give you a bigger percentage off their products with their store cards than the offers available to non-cardholders. You can frequently score promotional coupons and regular discounts as well.

But note that “I’ll get 40% off my purchase” isn’t an excuse to sign up for every retail card you’re offered. These cards tend to carry high interest rates (one of the reasons we rarely recommend them), so you’ll want to take advantage of them only if you’re prepared to pay off your balance in full and if you intend to use the card more than once.

For instance, if your family is expecting and you can get regular discounts at a favorite baby supply store by using the retailer's card, it might be a good move. Same if you loyally purchase your toiletries and groceries at the same store year after year, or if you’re buying a house and see a future full of appliances and socket wrenches from your local home supply store. If you want to sign up for the card to get a discount on one small purchase at a store you’ll never visit again, put down the pen.

And be sure to read the fine print. With some offers, if you don’t pay the full balance by the end of the special offer period, you will owe accrued interest back to the purchase date.

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