Getting your first credit card is an important financial milestone, and it often happens when you’re college aged and carefree.
In many cases, the thrill of “free money” takes precedence over fully understanding the process of credit — and the importance of repayment. Such was the case for Farnoosh Torabi, now a financial expert, author, and host of the “So Money” podcast.
“Early on in my career and earlier on in my life, I think I made more grave mistakes, [but] the biggest was when I got that first credit card — or those first three or four credit cards — not really understanding the responsibility that came with it, assuming that it kind of was like free money,” Torabi told Business Insider during a FB Live interview.
Torabi said she would spend money with no reservations and pay the minimum when the credit card bill arrived each month.
“But of course, that is no way to build credit, and no way to get out of debt either,” she said. “That was something that I learned the hard way.”
Not only did she adopt the bad habit of paying just the minimum amount — which could cost you a fortune in the long run, thanks to interest — Torabi said she once forgot to pay the bill all together.
“There was one instance where I was late paying a credit card bill and it wasn’t because I didn’t have the money or because I was purposely trying to be rebellious. I just forgot,” she said, adding that she simply didn’t open the mail and found out she didn’t pay it when the next month’s statement came.
Torabi remembered incurring a late fee that showed up on her credit report and gave her a true “wake-up call.”
“I feel like that was probably my biggest mistake and something that was probably more embarrassing than anything,” Torabi said. “It’s like, I could have avoided this and I just didn’t.”
Torabi said the incident happened before she “realised the power of automating my bills,” a practice that can save you from the worry of remembering due dates and the headache — and embarrassment — of missing a payment.
Though she paid the late bill over the phone soon after, the incident came back to haunt her when she went to apply for a mortgage four years later when the underwriter questioned the gaffe.
“It wasn’t ultimately anything that blocked my ability to get the mortgage. However, had that behaviour continued or had there been more signs of bad behaviour on my credit report, who knows, I may not be in the situation I am today,” she said.
Watch more from Business Insider’s Facebook LIVE with Farnoosh Torabi: