It is desirable to have the backup drive larger than the drive you are backing up. Don't select "Sector by sector" backup, and don't use compression.
I backup a 1 TB drive on to a 1.5 TB external drive using Win 7 Backup or the free EASEUS TODO BACKUP alternately. I store two of the most recent backups just in case.
Also create a "System Repair Disk" or Rescue Disk. The option is available both in Win 7 as well as Easeus. Easeus will also do incremental backups if you so desire.