Decide if you want to go out with him. If you like him, say yes. You don't need to say anything else at the time other than yes or no, as that's all he is waiting to hear.
Reject him politely if you don't want to go out. Tell him that you're flattered but not interested at this time. Don't laugh at him or make a joke of it, just be confident and mature in turning him down.
Make sure you are portraying your answer correctly. Don't say maybe and give him the hope that you might want to go out with him when you don't have any intentions to.
Act friendly and cute if you are interested. Smile big and let him know it's a good thing he asked you out. It probably took him a long time to work up the nerve. Play it cool and don't act desperate.
Give him a chance if you are unsure. You might have a great time when you didn't think you would. He may surprise you and be a really fun date.