Credit Card History

I’ll gladly pay you Tuesday for a hamburger today

The word credit comes from Latin, meaning "trust," and people have been trusting each other for thousands of years now when it comes to paying off their debts. Ever since people have had the need to purchase goods from somebody else, some type of credit system has been in use. It’s believed that credit was first used in Assyria, Babylon and Egypt about 3000 years ago. Even when paper money was invented in the 17th century, some type of credit system was still used as it was common for merchants to sell their goods in return for weekly payments. Today, in the 21stcentury, credit is more popular than ever.

While references to some form of credit cards date back to the late 1800s in Europe, it’s believed the official birth of the credit card happened in the 1920s. This is when a buy now and pay later system was introduced by several stores in the USA to drum up and keep business. This idea quickly caught on and businesses such as oil companies and hotel chains started issuing credit to their customers. In the late 1930s, the method of extending credit was revolutionized as various businesses began to accept each other's credit cards.

The world of credit grew even more in 1950 when the Diners Club multipurpose credit card was introduced to the U.S. public. The credit card was invented by Frank McNamara after he found himself in the embarrassing position of not having money with him to pay a restaurant bill. The Diners Club card was meant to allow diners to eat without money at any establishment that accepted the credit cards. The Diners Club paid the restaurant bills and the credit card holders repaid the Diners Club. However, the original Diners Club cards were technically charge cards as the customers were required to pay off the entire amount of the bill instead of just a portion of it.

Because these original Diners Cards were interest-free, McNamara made his money by charging the restaurants that accepted them a seven percent fee and his card holders a three dollar annual fee. Diners Clubs cards were aimed at traveling salespeople as they frequently had to eat at restaurants. The original credit cards were given out to 200 people and accepted by just over a dozen New York eateries. The cards were made of thick paper, with the restaurants that took them listed on the back. In fact, before the plastic credit card was invented there were various types of credit markers used such as metal coins and plates, celluloid, and an assortment of different fibers and papers.

With some restaurants balking at paying the fee, and many customers not wanting to use a card that wasn’t widely accepted, the card got off to a slow start. By the end of the year, however, there were approximately 20,000 people with Diners Club credit cards in their wallets and purses. The number of Diners Club cards grew yearly, and the company faced some stiff competition in 1958 when the American Express card was born and again when BankAmericard (which later became Visa) was introduced the next year.

The first bank-issued credit system is believed to have originated in New York in 1951 when the Franklin National Bank introduced a charge system between its customers and local stores. The merchants would deposit their sales slips into the bank and the bank would collect the amount owed from consumers who used the card.

In the early 1960s, more businesses started to offer credit cards, with many of them sending cards in the mail to people who hadn’t ordered them. This prompted the U.S. Congress to start regulating the industry in the mid 1970s. However, credit card companies continued to pile up the profits and still do so today.