The Birth & Growth of Credit Cards

Have you ever wondered how it came to be that using a credit card would become a necessary part of your personal finances? It seems counterintuitive that borrowing would be a good thing. The fact is, that over time credit has turned into a major factor in demonstrating your ability to manage money over an extended period of time and through the thick and thin times of life. In addition, few of us can get by without a little help from a bank to buy a home, car and other expensive items. There are few lenders would fork over the necessary funds without first making sure you’re good for paying it back.

The history of credit goes all the way back to biblical times when money lenders exacted interest for the loans they provided. Down through the ages are other examples of lenders. In the 15th century, the Queen of Spain fronted the funds for Christopher Columbus to voyage to the new world with the condition that he shares a percentage of the riches he would incur from the mission. With the advent of the industrial revolution, mass production made products available that were once reserved for the wealthy. The prices remained too high for the average person to buy outright, so installment plans were invented to encourage and boost sales. Items once out of reach for the general public could now be purchased by making regular payments until it was paid off.

Early Cards

Nearly two millennium have passed since the time of the first moneylenders, before the concept of a credit card began to form. Early credit accounts were direct agreements between a merchant and the customer. The first references to credit cards can be found in Europe as far back as 1890. The first cards were metal plates issued by Western Union to their best customers to defer payment on services used. Prior to cards Western Union simply used paper identification.

In the mid 1920s, big oil companies, major retail stores and hotel chains issued metal money to build customer loyalty and could only be used at the issuer’s company. First offering it to employees, then to select customers, the system worked so well that it was offered to the general public and other industries followed suit. By 1946, banks began offering a charge-it program that allowed their customers to buy from local merchants. The bank would then pay the merchant receipt and bill the customer who used the card.

Universal Charge Cards

One of the other triggers that helped push credit cards into the general market was mass transportation. Mass transportation became more available and affordable by the 1950s. Salesmen and vacationers could now travel farther and more frequently than ever before. Carrying a dozen credit cards to cover all of the potential purchases on a trip was cumbersome and inefficient. It was around this time that three businessmen came up with the idea of a universal card that would cover all expenses. The company they established was called the Diners Club. By pooling their resources they would be the middleman between a business and their customers. With a Diners Club card, individuals could shop wherever the card was accepted; in return Diners Club would pay the merchant and charge the customer who had up to 60 days to make payment in full.

Diners Club had eight long years before competition from other companies jumped on the bandwagon. It was American Express and BankAmericard (Visa) that provided the first competition by offering their own brand of one-size-fits-all charge card. Companies were eager to provide the card when they found that customers who used a charge card spent more. Part of the growth came when businesses began advertising the card as a ‘time-saving’ device rather than a form of credit.

First Revolving Credit Cards

With the boom in industrial manufacturing and the proliferation of modern day inventions that came about following World War II, Americans wanted to own more conveniences and the current charge cards were not providing the necessary source of funds. Banks, being in the business of lending money, began to examine the needs of their customers and implemented new lines of credit to be used in anyway the account holder chose that could be paid back over time. They used the opportunity to gain additional income by charging interest through this new line of credit.

Bank of America in California introduced the first revolving credit cards, the most common in today’s market, to the public, in 1959. They introduced payment options that included the opportunity to pay the balance in full or to make monthly payments with interest charged on the remaining balance. In 1965, they began issuing contracts with small and large banks across the U.S. to provide BankAmericards to their customers.

As the industry expanded, banks became members of BankAmericard or MasterCharge to share program expenses. With the credit card boom expanding to countries around the world, BankAmericard became known as VISA in 1977 and was followed by the change in MasterCharge’s name to MasterCard in 1979.

Credit Card Regulations

Through the years, Congress has put in place regulations to help that keep the industry honest and help consumers better manage their credit accounts. It’s been a process that continues to evolve as technology changes. During the mid 70s, laws were put in place that banned the mailing of active credit cards and recently the CARD Act of 2009 mandated more transparency by credit card issuers and banned what they deemed as unfair lending practices.

From its humble beginnings, as a way to make buying easier, to today’s technology that has made the process of using a credit card more secure, there’s no denying the convenience and advantages to consumers. Electronic processing has sped up authorization to less than two minutes, while banks, issuers and processors continually work together to prevent fraud and identity theft. We have come a long way in a short time. Where will we go from here?


Noreen Ruth is a regular contributor to www.wowcreditcards.com along with a wide variety of finance related websites and blogs. She specializes in credit and debt-related issues, and provides useful information to help consumers learn proper money management techniques, compare credit card offers, debt relief programs and make other prudent financial decisions.