When it may make sense to borrow money - By Tricia Zwirner and State Farm

Few of us go through life without ever applying for a loan or borrowing money. Borrowing and repaying money can help you establish a credit history that will make it easier to get financing when you need it. But use credit judiciously, so it can help, rather than hurt, your finances. These examples help illustrate the difference between "good" and "bad" borrowing practices.

Good times to borrow

You're buying a home. To make a home purchase, most buyers need a mortgage loan. This type of financing is often considered good debt because a home is an investment that's anticipated to increase in value over time. The caveat? Look at your entire financial picture before taking on a home loan, and make sure you're buying a home you can truly afford.

You're adding to your education.  If you're finishing up an advanced degree or need additional training to move ahead in your career, taking out a student loan can be a smart move. Shop around for the most favorable rates and repayment plan.

You're setting up a household. You'll need some basics to begin with, such as a bed or a refrigerator. Essential appliances and furniture often can be purchased via installment financing through the store—but don't overdo. Not everything in your first place needs to be new. Thrift stores, yard sales and family members can be good sources of basic furnishings that tide you over until you can afford the items you want.

You're consolidating debt. If you have several credit cards with high interest rates, it may make sense to get a loan to achieve a lower overall interest rate and smaller payments. But note: Put those cards away. Don't rack up new charges as you're paying off the consolidation loan.

Good times to wait

You want to buy extravagant holiday gifts. It's never a good idea to borrow money—either through a loan or on your credit card—to spend above your means. Temper your generosity and choose meaningful, less expensive ways to remember others at the holidays.

You'd like a nice wedding. Taking out a loan to put on a lavish ceremony and reception that you can't truly afford could start your marriage out under a financial eight ball. Scale back your plans to fit your budget and focus more on the occasion than the show surrounding it.

You need a vacation. Travel typically costs more than you think it will, and if you have to take a loan simply to go on the trip, you're better off finding more affordable ways to relax and recharge.

Good rules of thumb

Borrow only what you need. While it's tempting to borrow more, you'll end up having more to pay back and risk undermining your budget.

Shop around for good rates. Compare interest rates and payment terms. If you have a good credit score, you may be able to negotiate a better offer.

Pay off credit card balances every month. Carrying a balance means you'll pay more for every purchase you make, in the form of interest charges on the amount.

Check your credit report at least once a year.

Knowing your credit score may help you secure more favorable rates. To get the most out of the free credit report provisions of the FACT Act, when you request your free credit reports from each of the three major credit reporting agencies, stagger them throughout the year rather than getting all three at once. This will give you a series of snapshots of your credit over a period of time.

However, there are circumstances when you might want to get all three free credit reports at once. For example, if you have a major credit purchase on the horizon, such as a home or auto loan, you may want to take a look at all three reports right away so you can correct any errors or inconsistencies before you apply.  Visit www.AnnualCreditReport.com today.