5 Steps to Getting Excellent Credit

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Having an excellent credit score is not as elusive as it seems. You simply must trade in your bad financial habits, no matter how innocent they seem, for these five healthy habits. (See also: 5 Best Credit Cards for People With Excellent Credit)

1. Always pay your bills on time

One late payment can send your credit score spiraling. Even if you forget to pay a credit card with a minuscule balance leftover, it will still negatively impact your credit score. About two years before my husband and I bought our first home, I forgot I had a Victoria's Secret credit card. The balance owed on the card was very little — less than $20. But since I forgot I owed money on it, I didn't pay the card for three months.

Fast forward two years, and the ding from the unpaid Victoria's Secret card was keeping my credit score a few points away from being excellent. We ended up putting the home loan under just my husband's name to ensure we got the best rate. All that hassle for a forgotten credit card bill two years prior. (See also: Prioritize These Bills When You Are Short on Cash)

2. Don't use all of your available credit

Those with excellent credit scores use less than 30 percent of their available credit. One factor considered when calculating your score is your credit utilization ratio. Your credit utilization ratio compares your balance to your total credit limit. If this ratio is too high, your credit score begins to suffer. For example, $2,000 of debt on a card that has a $10,000 limit looks much better to creditors that $250 of debt on a card with a limit of $500. Even though the first example owes more money, the utilization is only 20 percent, whereas the latter example is at 50 percent.

You can lower your credit utilization ratio in two easy ways. First, calculate how much credit card debt you need to pay off in order to get your utilization ratio under 30 percent, and start making payments to get there. Second, call your credit card company and ask for a limit increase, which will in turn lower your credit utilization ratio. Most creditors would be happy to raise your spending limit, especially if you are in good standing with them. Just be sure not to increase your spending, too. (See also: 4 Questions to Ask Before Getting a Credit Limit Increase)

3. Hang on to old credit card accounts

Another factor considered in calculating your credit score is the age of your overall credit history. Being a card holder with one company for over a decade will look better on your account than having several new cards opened or closed within the span of several years.

Building up a longer credit history takes time. Figure out which card or account is your oldest, and use the card periodically. For example, say you have an old card that doesn't offer you many benefits, so you rarely use it. Don't just close this old account. Instead, call them and ask if you can get an upgrade to a card that earns better rewards. This way, you can use the card periodically, earn better rewards, and still benefit from a longer account history. (See also: How to Close a Credit Card Without Dinging Your Credit Score)

4. Monitor your score

If you are not already monitoring your score, then start today. You need to know where your credit score stands at least quarterly. This will help you catch any mistakes or fraud quickly. (See also: Best Credit Cards That Offer Free Credit Scores)

Back in college, my husband never thought to check his credit score. Every time he would apply for a credit card, he would instantly be rejected. When he finally checked his credit history, he discovered the bureau mixed up his name with his father's. His history showed that he already had a bankruptcy and foreclosure at the ripe old age of 19.

Along with knowing your score, you also want to prevent people from running your credit unnecessarily. Car dealerships are notorious for this. Instead, get preapproved for a loan from your local credit union and refuse the dealership's request to run your credit.

5. Live within your means

The only way to live a financially responsible life, which is reflected in your credit score, is to live within your means. Pay off outstanding credit card debts and other high interest loans, and then commit to only charging what you can pay for in full. Build up a reliable emergency fund, contribute to a retirement plan, and invest. There are no tricks to getting excellent credit. It all comes down to being consistent with good financial habits. (See also: 7 Habits of the Financially Successful)