The credit card.
Over 70% of Americans have at least one credit card, and for many a quick swipe or tap of the card is second nature to the point they don’t even think of it. But where exactly did these cards come from? How did they become so indispensable to daily life in such a relatively short time span?
Pre-Card Credit
The concept of a “Buy now, pay later” arrangement goes back farther than one might expect. Current evidence shows records of credit systems going back to the 1700’s, and there’s room to conjecture people have privately offered arrangements between friends and family based on goodwill throughout time. However, by the 1800’s, we see firsthand accounts that have survived to this day showing it was common for consumers to have “charge accounts” at individual stores that allowed them to make purchases on credit. This was especially common for farmers and in agricultural societies. Lewis Mandell, financial economist and author of The Credit Card Industry: A History notes, “They (farmers of the time) very often have to finance agricultural operations by borrowing money for seed and other things to keep them going until (the) harvest.”
Interestingly, up until the early 1900’s it was seen as a marker of poverty and socially stigmatized to carry an account. This started to change when department stores introduced a new system to the market.
The First ‘Credit’ Cards
One of the most direct predecessors to the modern credit card was the Charge Card, as seen in 1914 by Western Union Telegraph Company. This card -sometimes known as “Metal Money”- allowed select consumers to charge their Western Union services, such as sending telegrams, to their account and pay it off later.
As another example, department stores such as Macy’s would issue paper cards or brass tokens to their best customers that would then be presented to the clerk at the time of purchase. These exclusive cards or tokens would allow the customer to take home the item and make a payment at a later date.
We see these charge cards building off the idea of a charge account, but with the addition of a physical token rather than an entry to the shopkeeper ledger, along with unique identifiers to match the account to the consumer. This would be both helpful and necessary for merchants who may not easily recognize every face coming into their establishment.
These tokens, metal money and charge cards all differed from modern credit cards in a few ways. For one thing, they operated on what’s called Non-Revolving Credit, meaning that the debt must be paid in full for each billing period. In contrast, modern credit cards don’t require full payment each billing period as long as a minimum payment is made- we call this Revolving Credit.
The exclusivity of these cards among the wealthy helped change the narrative around credit and charge accounts from a marker of poverty to a marker of class and prosperity.
Pictured: Multiple colorful shopping bags hanging from a woman's arm. A credit card is in her hand.
Early Credit Cards
In 1950, a landmark charge card comes on the scene. The Diners Club Card is introduced by Frank McNamara, who is said to have forgotten his wallet while eating at a restaurant and vowed to never face such embarrassment again by creating one card that could be used at multiple restaurants. The Diners Club Card was initially valid at a few dozen restaurants in New York. By 1958, not only was the card accepted in the UK, Canada, Cuba, and Mexico, it expanded from the dining market to the travel market by partnering with travel agencies in major cities!
At the same time in 1958, the BankAmericard was launched in Fresno, California. This card, like the Diners Club Card at the time, could be used at a variety of merchants, but unlike the Diners Club Card, BankAmericard offered installment payments with a 25-day grace period. This innovation allowed the program to expand around the world and eventually became what we know today as Visa.
More credit cards came onto the scene in the 1960’s from now- familiar names such as Citi and American Express, and as the industry continued to grow and evolve so did legislation regarding credit and lending practices.
Modern Times
Today, we’re no strangers to credit cards, consumer debt, and the potential pitfalls that can come with it. On a social level, using credit is seen somewhere in the middle; It’s less stigmatized than it once was, but it’s also less glamorized than it used to be. There’s an abundance of information on what “the best” way to use credit cards are— or if you should use them at all.
However, credit cards aren’t something to be afraid of- they’re tools that can help you as you pursue your financial goals. And like with any tool, the better you understand it and practice using it responsibly, the better you get at handling that tool.
Are you looking to sharpen your skills with credit cards? Are you looking for help getting out of debt? Or are you curious where your credit can take you?
AZTEC Financial Group is here to help answer your questions and work with you to make sure you understand what you need to know in order to use your credit wisely, and to help build the life you’re dreaming of.