A Brief History of Credit Cards

old credit card There are several claims by different companies and individuals declaring themselves the inventor of the first credit card. This brief summary should help you gain insight into the history of its general usage.

Prior to the advent of credit cards, businesses and consumers were mostly limited to traditional means of paying for purchases- cash, personal checks, and store credit (if offered).

Charge Cards

Still available today, the charge card was the first step towards the modern day credit card. In the early 1900s, stores and gas stations began offering frequent customers a charge card to put purchases made at that specific store (Sears, Esso were among the first).

Cardboard Credit Cards

This was taken a step closer to today’s credit cards around 1949 when Diners Club issued the first cardboard ‘credit card’ for use by members in restaurants and nightlife spots around Manhattan. The members paid a fee in exchange for the privilege to sign for a check, which would be later repaid. The stores were promised more repeat customers as members would prefer the establishments accepting the card.

In just two short years, by 1951, Diners Club had around 20,000 members. They switched from cardboard to plastic credit cards just a few years later.

Revolving Credit

The next big transition in the credit card industry was the switch to revolving credit. Initially, the entire balance of the card was to be paid off each month. Companies made money on the annual fees members paid. That changed when customers were allowed to ‘roll’ the outstanding balance into the next month, and pay interest on the balance.

Modern Day Usage

The idea of ‘buy now, pay later’ really took off. In the 1970s Visa and MasterCard further expanded the reach of credit cards by creating associations with member banks to work together. These companies don’t issue cards or lend the money or act as middleman between vendors and consumers, rather, Visa and MasterCard became the middleman between large banks and consumers. They facilitate the processing of payments between merchants and the banks.

Next we cover common credit card terminology you need to understand…