7 Habits of People With Great Credit Scores

Building and maintaining a good credit score is important. Not only does a high credit score mean you'll likely pay less in interest on your loans, but you'll also have more choices in financial providers and lenders — making it easier for you to get a great deal on your next loan or credit card.

If your credit score is lower than you'd like, don't give up hope; there are multiple ways to build credit. Adopt these seven habits of people with good credit scores so you can improve your own credit score.

See: How to Take Control of Your Money

1. They Regularly Check Credit Reports

In order to improve your credit score, you need to know what your score is and any problems that you might need to fix. The only way to find out is to check your credit reports regularly — something people with great credit scores do at least once a year.

You can get a free copy of your credit report every 12 months. Your credit report will show your credit and loan providers, the amount owed and your payment history. If there are any problems on your credit report or discrepancies, you should contact your credit reporting agency and your creditor. To dispute an error on your credit report, the Consumer Financial Protection Bureau recommends writing a letter to the credit reporting company and identify each mistake on your credit report.

2. They Have a System to Ensure Bills Are Paid on Time

There are a few different ways credit providers determine your creditworthiness, but the most common system is the FICO Score model. Your FICO Score is determined by a number of factors, but 35 percent (the highest portion of your score) is based on your payment history.

If you're constantly forgetting to pay bills when they're due, then it's time to develop a system to get on top of it. Either pay each bill when it comes in or see if you can set up automatic bill pay to avoid late payments. You can also set reminders in your phone for when your monthly and annual payments are due.

3. They Maintain a Budget and Record Expenses

Very few people maintain a budget and track their expenses. In fact, a Harris Poll study prepared for the National Foundation for Credit Counseling (NFCC) found that 60 percent of Americans don't have a budget and either rarely or never track their spending. Little do these people know, this is one of the most important ways to build credit.

If you're monitoring your budget and tracking your spending, you're less likely to miss a payment or find yourself short when a bill is due. Start developing good habits by creating your own personal budget. Take a look at your monthly income and regular expenses, and record transactions as they occur. You can use a budgeting tool like Mint or YNAB, or just create a simple spreadsheet. The key is to look at it regularly to keep track of your spending and know when bills are due.

4. They Monitor Debit and Credit Card Balances

Keeping on top of how much money you put on your debit and credit card is important if you want to keep your credit score high. If you're paying for things that you don't use — or don't remember — then you could miss a payment and get a black mark on your payment history, pulling down your credit score.

Go through your credit card statements and look for any inaccurate or outstanding charges. If you find that you have a spending problem, cancel the cards that you don't need any longer.

Related: The Biggest Credit Score Myth That Just Won't Die

5. They Minimize Use of Available Credit

According to myFICO.com, people with credit scores of 800 and above use on average only 7 percent of their available credit. That means if you've got credit cards with a combined total limit of $20,000, you need to maintain a balance of $1,400 or less.

If your credit utilization is higher, then this could be dragging your credit score down. And if you're maxing out your credit cards regularly, then this is almost certainly a sign that you're at risk of missing a payment or being overextended.

To improve your credit score, work on paying off the outstanding balances on your credit cards and other loans to increase your amount of available credit.

6. They Think Twice Before Applying for New Credit

You might think nothing of signing up for a new store credit card to take advantage of a discount or special offer. After all, you can cancel it later, right? But those new credit accounts could do a lot of damage to your credit score. New credit accounts that have been opened in a short period of time count for 10 percent of your FICO score.

What's more, too many hard inquiries — inquiries lenders perform to check your credit before giving you additional credit — can have a negative effect on your credit score. So unless you really need that new line of credit, think twice before applying for a new credit card or loan — especially if you're interested in building credit.

Read: 24 Things You Need to Know to Build Credit

7. They Protect Themselves from Identity Theft

While it's hard to totally protect yourself from identity theft and fraud, you can mitigate the damage. The first step is checking your free credit report for any discrepancies, including credit inquiries that weren't initiated by you.

If you're really concerned about identity theft, sign up for ongoing credit monitoring from myFICO.com, which will alert you of any changes to your credit report and monitor for possible identity fraud. And if you do suspect that your credit information is at risk, make sure you contact your credit providers and credit reporting agencies immediately. The hassle of having to replace your credit card is infinitely better than having to repair your credit score after your identity has been stolen.

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This article originally appeared on GOBankingRates.com:

7 Habits of People With Great Credit Scores

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