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The History of Credit Cards

By: David Benton

The invention of the credit card was preceded by 9,000 years when the idea of credit was first invented—long before writing had even been invented. In fact, writing was first created by traders for the sole purpose of tracking business transactions.

Along with the invention of credit came debt; however, in the beginning it was socially unacceptable to charge interest on outstanding debts. The amount of credit used or loan taken was all that a person was responsible to pay back. It was the Sumerians who changed all of this. Sumerian lenders realized that lending capital to people resulted in lost profits and soon began charging interest, which could be as high as 23% even in those times!

Just as is the case today, back then debt was a problem; however, be happy you’re in debt in today’s society and not in ancient Samaria or even during the 19th Century. It used to be common practice thousands of years ago for debtors who could not afford to pay back what they owed to have to sell themselves into slavery, and during the Victoria era, during Charles Dickens’ time, debtors in England were arrested and put into poor prisons along with their wife and kids. Dickens himself spent time in a debtor’s prison as a young child when his father failed to repay his debts.

The invention of the credit card itself goes back to the early 1920s when gas stations and hotel chains offered them for use at all of their locations, a practice that is still prevalent today. In the late 1940s these companies began to realize that there was money to be made by accepting each others credit cards and began doing so, but it wasn’t until 1950, when Frank McNamara invented the Diner’s Club credit card, that the credit card began to evolve into what it is today.

The Diner’s Club card made it easy for business travelers and individuals who dined out frequently to pay for their meals without the hassle of carrying around cash. However, American Express and Bank of America realized the potential for credit cards being used to buy other goods and services, and in 1958 began offering their own credit cards.

What started out as a fledgling industry began to boom in 1966 when Bank of America changed the name of its credit card to Visa and began licensing the use of their cards to other banks; thus, expanding their influence across the American banking industry.

Of course, what would America be without good old fashioned competition? It would be a nation where everybody owned a Visa. But in 1967, 14 U.S. banks got together and formed MasterCard. Today, both Visa and MasterCard license their names through banking institutions world wide and market themselves for acceptance at millions of retailers, both online and offline. Both companies are still run by a board of directors from the core group of banking institutions that had a hand in their creation.

Banks used to only be allowed to contract with either Visa or MasterCard, but today both organizations realize there is a mountain load of debt consumers are willing to run up on both types of credit cards. Long gone are the days of heavy competition between the two organizations.

All of this history brings us to where we are today. The average household today has eight credit cards, with an average of $8,000 in outstanding debt. Make no mistake about it, the credit card industry wants you to be in debt. They even have cute little names to describe their card holders.

  • Deadbeats: Cardholders who pay their balances off in full every month.
  • Revolvers: Cardholders who carry a balance on their credit card from month to month.
  • Rate surfers: Cardholders who use their credit cards based on the lowest interest rate.
The credit card companies don’t like deadbeats. If you’re one of them you may find that your credit line steadily rises every six to twelve months. Don’t mistake this as a sign of reward and good faith on the part of the credit card company. They are looking to get you to charge to a point where you will have to carry a balance, so continue to be smart when you shop.

There is nothing wrong with rate surfing. In fact, it keeps the credit card industry competitive and controls the amount of interest they charge. Did you know that credit card companies can charge as much interest as they want? They can also change the rate at anytime. This is something to think about the next time you charge that movie rental or dinner at Taco Bell instead of paying cash.

The credit card companies like Revolvers because they make the most money off of them. I won’t tell you that your goal in life should always be to stay debt free. This is nearly an impossible task. Without going into debt most people wouldn’t be able to ever buy a house or a nice car or the new videogame system their child keeps pestering them about. Debt has become a way of life in our society; however, this doesn’t mean you have to sink yourself in it. I find that following one basic rule helps me to keep from getting to far into credit card debt: if the purchase is $500 or more, I charge it. Anything less, I pay cash. I also lay out a plan for paying off the balance in a manner that doesn’t strain my finances, but which does not take very long either.

Credit cards have evolved into a billion dollar industry in America, a billion dollar industry we all contribute to; however, you shouldn’t contribute to it at the expense of your financial ruin.