When Were Credit Cards Invented: The History of Credit Cards (2022)

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Robin Saks Frankel

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Updated: Jul 27, 2021, 9:00am

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From its original incarnation as a cardboard Diner’s Club card all the way to the heavy metal chip-embedded varieties you’ll find today, the fundamental premise behind a credit card has remained the same: A credit card is a method to buy now and pay later.

There are hundreds of types of credit cards available in today’s market made from plastic, metal and even just virtually stored on smartphones. These range from charge cards (which have to be paid in full at the end of every month) to revolving credit cards (which allow you to “revolve” or carry a balance from month-to-month) to those offering a myriad of other features.

Credit card money moves have also rapidly evolved in the last few decades, evolving from taking a card’s physical imprint to swiping, dipping, tapping or waving your information at a payment terminal.

Chronology

When Were Credit Cards Invented: The History of Credit Cards (2)

(Video) The History of Credit Cards (How Clay Tablets Became Credit Cards) - It's History

The Invention of Credit Cards

The concept of credit can be said to date back to at least 5,000 years ago in ancient Mesopotamia. Inscriptions on clay tablets from that time period show a record of transactions between Mesopotamian and neighboring merchants from Harappa, and are among the earliest known examples of an agreement to buy something in the moment but pay for it later.

Fast forward thousands of years, and these ancient I.O.U.s gave way to the earliest versions of store cards, where merchants in the Old West would issue goods to farmers and ranchers who wouldn’t have the money upfront to buy the supplies. The merchants would issue metal coins or small plates as a receipt of the loan and, as the farmers harvested their crops and ranchers sold their livestock, they would repay the merchant.

Over time, these placeholders for payment-in-full evolved in the U.S. into versions that more closely resemble the cards we know today.

First Store Cards

The first iteration of store cards were known as charge plates, credited with being popularized by the Charga-plate bookkeeping system. These dog-tag style metal plates were used in the 1930s through the 1950s by department stores that each issued their own store plates to their customers.

In 1950, the Diners Club card became the first store card to gain widespread use after founder Frank McNamara was inspired by leaving his wallet at home while out dining. He and a partner, Ralph Schneider, launched the first Diners Club card, widely considered to be the birth of the modern charge card. Patrons who held the card would charge their meal to the card and the restaurant would send the bill to Diners Club. In turn, Diners Club would send payment directly to the restaurant’s bank, taking a small commission for the transaction. Cardholders would be required to pay their bill in full each month to Diners Club.

In its first year of operation, Diners Club grew to more than 10,000 members and included 28 restaurants and two hotels that would accept monthly from their elite clientele.

First Bank Cards

Although it began as a freight transport company, American Express eventually shifted its focus to its money order and travelers check business, which provided a safe replacement for carrying large sums of cash. Eventually, American Express developed its first charge card in 1958, allowing customers to pay their bill monthly in exchange for an annual fee. Merchants who accepted the card would pay American Express a percentage of the amount being charged, a precursor to the practice widely used today known as interchange fees.

Later that year, California-based Bank of America took it a step further, issuing a paper BankAmericard with a pre-approved limit of $300 to 60,000 customers in Fresno and rolled the card out state-wide by 1966. This first attempt ended up being a costly error in judgement, with delinquency rates over 20% and rampant fraud.

That said, the concept of a revolving credit card that you could carry a balance on from month-to-month proved to be a success as America’s growing middle class grabbed on to this newest financial product that provided both convenience and an instant personal loan. Later, in 1976, the BankAmericard changed its name to “Visa,” a word that sounded the same in nearly every language.

First Interbank Cards

In response to the success of the BankAmericard, in 1966 a group of California banks formed a partnership known as the Interbank Card Association (ITC) and released the second most popular credit card, first called the Interbank card and later changed to Master Charge, which eventually became MasterCard in 1979).

First International Cards

According to Diners Club, in 1953, their card was the first internationally accepted charge card when businesses in the United Kingdom, Cuba, Canada and Mexico began accepting payments from Diners Club cardholders.

By 1970, BankAmericard was so successful that the International Bankcard Company (IBANCO) was formed to roll out the payment card on a worldwide scale.

Evolution of Credit Card Technology

A major breakthrough in credit card technology in the 1960s was a catalyst in popularizing credit cards as a payment method. An IBM engineer named Forrest Parry is credited with affixing magnetic tape to the back of cards so that consumers could have their information “swiped” at a point-of-sale terminal. Magnetic tape was originally used to store audio information and Parry was tinkering with ways to have it contain cardholder information to put on a credit card. Legend has it that Parry’s wife, who was ironing, suggested he iron the tape onto the card and the swipe stripe was born.

With technological advances come those who try to exploit them. As credit cards gained in popularity, so did the swindlers who used their own methods to make false charges using others’ card information. The easy access of swiping a card meant thieves could use a card they found or stole. More sophisticated fraudsters developed a process known as “skimming” where a thief could skim the information with their own reader to steal the cardholder’s information.

A safer technology was developed in France in 1984 when microprocessors were embedded into cards that could be read by specialized payment terminals. By 1994, all credit and debit cards in France employed this technology which, combined with a PIN, or personal identification number, added extra layers of protection to the payment process.

Soon other countries developed their own credit card chip systems, but since the card readers were not interchangeable it means someone traveling to another country would have to have their card swiped instead of having the chip read. The need for a standardized payment system became a global issue and in 1994 three international payment processors, Europay, MasterCard and Visa began the development of a global chip specification for payment systems.

By 1996, the first specifications for EMV chips were released, with subsequent versions released afterwards. The most significant advance in the credit card chip industry came with the advent of contactless payment systems where a credit card’s chip could be read by holding it near to an enabled payment terminal. This could be done with Near Field Communication (NFC), a type of radio frequency that was used so that a card’s chip and the point-of-sale terminal could “talk” to each other. Eventually, card information could be stored in smartphones and wearable devices and read by terminals using the same NFC technology.

How Do Credit Cards Work?

When you dip your chip-enabled card into a payment terminal, or wave your card information to make a contactless payment there is a brief back-and-forth conversation between your card’s issuing bank and the merchant’s bank where it is determined if you have enough credit left on your card to complete the transaction, if the transaction should be authorized and other technical details required to complete the transaction. This information being exchanged is encrypted to prevent it from being accessed by sophisticated scammers who may employ techniques to try and get authorization information.

Credit Cards and Credit Scores

Anyone who has a credit card or other type of bank loan has a credit score. That three-digit number can determine everything from your likelihood of approval on a new loan to what types of rates you’ll be offered. This can affect not just your credit card APRs but the interest you’ll be charged on other types of loans like mortgages, auto loans and student loans.

Credit scores and credit reports are used as a type of financial identity to identify your creditworthiness based on your history of handling loans. This includes things like how much debt you’ve taken on relative to your maximum credit limit, your history of on-time payment behavior and how many new loans you’ve opened within a recent period of time.

For most of history, loans were based on reputation. A lender would decide if a potential borrower was approved based on word-of-mouth reputation or simply by how the lender judged the character of the person seeking a loan.

That all changed in the 1950s when engineer William Fair and mathematician Earl Isaac created a standardized system of assessing someone’s creditworthiness based on an impartial scoring system. Originally known as the Fair Isaac Company, today’s FICO score first debuted in 1989 and has a scale of 300 to 850. A FICO score is based on payment history, amounts owed, length of credit history, types of credit used and recent credit inquiries.

(Video) How Credit Cards Were Invented | Planet Money | NPR

Although there are many different iterations of FICO scores and different versions have been released since its founding, the FICO score generally remains the standard way of identifying someone’s credit standing.

When Were Credit Cards Invented: The History of Credit Cards (3)

Credit Card Reward Programs

Rewards programs have existed as long as there have been people buying and selling goods. Depression-era families would collect teaspoons included with every box of Wheaties, which later gave way to paper coupons that could be accumulated and redeemed as points toward housewares. One of the most popular of these collect-and-redeem rewards programs was the S&H Green Stamps program where consumers could collect stamps from purveyors like grocery stores, gas stations and department stores and trade them in for items from the S&H catalog

Loyalty programs like these paved the way for airline affinity programs, starting with American Airlines’ frequent flyer program in 1981 and expanding to multiple airlines and hotel brands worldwide. Credit cards began issuing their own multipurpose rewards programs which included cash back rewards (launched by Discover in 1986) and American Express’ Membership Miles (later renamed Membership Rewards) in 1991.

Now, credit card rewards have become ubiquitous and desirable, offering a wide range of redemption options, uses and values and driving demand among consumers to acquire new rewards cards. According to J.D. Power’s 2021 Credit Card Shopping Study, 22% of those surveyed cited rewards as the main reason they chose a particular card.

Credit Card Legislation

Between the explosion in the number of bank-issued credit cards and the rising amount of debt Americans were carrying on their cards, the industry was ripe for abuse. Banks were free to charge whatever interest they felt appropriate and impose late fees in any amount they chose, creating hardships for consumers. Legislation was enacted to help curb the punitive behavior of credit card companies and provide protection to cardholders.

Truth In Lending Act (1968)

The passage of the Truth In Lending Act (TILA) in 1968 enacted protections for consumers from unfair billing practices. The law applies to all loans, not just credit cards. Under this act, banks must disclose the rates and fees of the loan so that the consumer can comparison shop. TILA also gives someone the right to back out of a loan within three days. It does not, however, set limits or guidelines as to how much a lending institution can charge in interest or if a bank has to approve a loan.

Fair Credit Billing Act (1974)

The Fair Credit Billing Act (FCBA) was passed in 1974 and amended TILA in several key ways. The law applies only to open-end credit accounts, such as credit cards, charge cards and home equity loans and was designed to protect consumers from unfair billing practices.

The FCBA allows eligible loan borrowers to dispute any charges that they believe to be incorrect such as unauthorized charges, goods or services that weren’t delivered or charges in incorrect amounts. The rule also prevented creditors from reporting your account as delinquent if you dispute a charge and provides guidelines on how both parties should handle and respond to a disputed charge.

Fair Debt Collection Practices Act (1977)

The Fair Debt Collection Practice Act of 1977 protects consumers from being harassed by third-party debt collectors. This includes harassing, threatening or inappropriately contacting someone who owes money. Notably, this only applies to third-party debt collectors, who lenders often turn to after trying and failing to collect a debt on their own.

Credit Card Accountability Responsibility and Disclosure Act of 2009

The Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act as it’s more commonly known, added further consumer protections to the Truth in Lending Act. Included in its protections were rules regarding the frequency and amount a lender could increase interest rates on a loan and ended the practice of marketing credit cards to young people on college campuses including limited access to accounts for those under 21 without a cosigner.

Credit Cards Today

Credit card legislation over the past few decades has provided a number of valuable and meaningful protections, helping to curb abuses by issuers and protect cardholders from incorrect and fraudulent activity on their accounts. But consumer advocates say there’s more still to be done.

For example, some issuers still use deferred interest in combination with an introductory 0% APR offer. This means that if the cardholder doesn’t pay off the entire balance within the promotional period, they’ll also be responsible for paying interest retroactively from the time they made the purchase, making the initial purchase far more expensive.

No law is perfect however, and it’s undeniable that the legislation currently in place has provided much-needed safeguards in a hundred billion dollar industry. As credit card technology continues to advance, so too will the need to adapt and evolve the laws governing against abusive practices.

The Future of Credit Cards

Like any technology-based industry, advancements in credit cards continue to shape the future of both how they’re used by consumers and what issuers can offer. One of the latest innovations in the payment industry combines blockchain technology with credit cards in several ways.

Some cards offer cryptocurrency as a rewards option instead of cash back or points. In some cases, a credit card can be used to purchase select shares of cryptocurrency. And from the business side, the indelibility of using blockchain technology as a recording ledger may very likely replace the way issuers currently record transactions.

Contactless payment technology, which saw a surge in use due to Covid, will likely continue to grow in popularity with users shifting away from traditional credit cards towards mobile wallets and wearable devices.

Artificial intelligence will continue to evolve and play a greater role in how issuers determine risk when assessing a credit card application, likely continuing to shift away from the limited data points provided by credit reports and incorporating more holistic information about an applicant.

Find The Best Credit Cards For 2022

No single credit card is the best option for every family, every purchase or every budget. We’ve picked the best credit cards in a way designed to be the most helpful to the widest variety of readers.

(Video) A Brief History of Credit Cards

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Bottom Line

Credit cards and their predecessors have remained a convenient form of payment for hundreds, if not thousands of years. As commerce has changed and evolved, so too have the ways in which credit cards have operated and been governed. Consumer demand for credit products continues to grow and credit card rewards, perks and other attributes outside of the basic function of making payments also continues to change to meet the changing needs of society.

Frequently Asked Questions (FAQs)

What is the best credit card?

For those seeking a clear-cut answer to what the best credit card is, unfortunately there isn’t one. Different people have different financial needs and backgrounds so there isn’t one “best” credit card that will suit everyone. The right credit card for you will depend on a combination of your goals, spending habits and credit history. The best card for you will be the one that’s the best for your individual needs.

What are the types of credit cards?

There are several different types of credit cards aimed at fulfilling a specific consumer need. Generally speaking, cards typically fall into one of the following categories:

  • Rewards cards. These offer a percentage back on your spending, either as cash back, points or miles depending on the particular card. These rewards can either be the same flat-rate on all of your spending, or varying amounts depending on the specific type of purchase.
  • Low-interest cards. These cards offer a break on interest rates, usually an introductory 0% APR on purchases, spending or both. These cards can be a useful way to save on a big purchase or help pay down debt faster if used as a balance transfer card.
  • Credit building cards. Someone new to credit or who had credit missteps in their past who may not qualify for a card with generous rewards or promotional APR offers may want to look for a card designed to help build up their credit score through responsible payment behaviors. This can include student credit cards, secured credit cards and cards that use alternative data to review an application.

What is the difference between personal credit and business credit?

Personal credit is based on your personal credit history and is connected to you for life. Your personal credit history is linked to your Social Security number and the big three credit reporting agencies, Experian, TransUnion and Equifax, each have their own record of your spending history and other payment data.

Business credit for larger companies is tracked using a company’s Employer Identification Number (EIN) and is not tied to your personal information. Business credit reporting agencies like Dun and Bradstreet, Experian and Equifax record your business spending information. Your business history will remain tied to the EIN number.

Business credit for sole proprietors and single member LLCs who don’t need an EIN, is typically based on the owner’s Social Security number and personal credit. This can be risky because if the business fails or is delinquent on payments, it will affect the owner’s personal credit as well.

What are the different credit scores?

The three main credit bureaus, Experian, TransUnion and Equifax, are the recordkeepers for nearly all credit scores. And the two main types of scoring systems used are FICO and VantageScore.

A VantageScore uses data from all three of the main credit reporting agencies to generate a credit score, which generally ranges from 300 to 850. A VantageScore between 661 and 780 is usually considered a good score.

FICO scores are more widely used and also use a scale of 300 to 850, with a score of 670 to 739 generally considered to be a good score. FICO scores are generated by each of the three agencies, so your Experian FICO score may differ slightly from your TransUnion FICO score since each company uses different algorithms to create their results.

When did credit scores start?

Credit scores started in the 1800s as businesses began keeping records of who they lent to, how much and the timeliness of repayments. Eventually, this information became standardized as technology allowed record-keeping to be stored on computers. Over time, three main companies emerged as the main credit score keepers—Experian, TransUnion and Equifax. The first FICO score debuted in 1989 and has set the standard for credit scoring models ever since.

How many credit cards should I have?

The number of credit cards you should have is not a set answer that applies to everyone. The answer is different for each person, but it’s also likely to change as your spending habits and knowledge about various offers evolve. For example, someone just starting out with credit cards is likely to do best managing just one payment account. But as you begin to build responsible payment behavior, you may want to experiment with credit card pairings of various rewards cards to maximize your return on spending.

Having too many credit cards also comes with potential downsides including having to track multiple payments and the risk of overextending yourself on credit.

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FAQs

When was the invention of the credit card? ›

The first example of the credit card as we know it today is often credited to a man named Frank McNamara and his business partner Ralph Schneider, who created the “Diner's Club” in 1949.

Who invented the first credit card and when? ›

The idea of credit has been around for a long time. But a Brooklyn banker named John Biggins invented the model of our modern-day credit cards in 1946. It wasn't until the 1980s that we could earn travel rewards for spending on their credit cards. You and I were was definitely born into the right era!

Who invented the credit card in 1946? ›

And in 1946, John C. Biggins, of Flatbush National Bank of Brooklyn, NY, created a system called “Charg-It,” a bank-issued card that let people in a two-square-block radius charge purchases to the bank.

Who invented the first credit card? ›

What is the history of credit cards? ›

The use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers for purchases made at company outlets.

Who invented the credit card in 1950? ›

Enter the Diners Club, first established by businessman Frank McNamara and his associate Ralph Schneider in 1950. McNamara took the idea of the purchase card and refined it. It sparked the modern banking card movement. Today, many refer to the Diners Club card as the original credit card.

Why is it called credit card? ›

Debit cards may be plastic, but every time you pay with a debit card, you're actually spending cash you've deposited into a bank account. A credit card is different. Think of it as a card that literally offers you credit — that is, the ability to buy something now and pay for it later.

Where was the first credit card invented? ›

There had been a dozen attempts by small American banks, but none of them were able to last very long. In 1958, Bank of America launched the BankAmericard in Fresno, California, which would become the first successful recognizably modern credit card.

Why do credit cards exist? ›

In its non-physical form, a credit card represents a payment mechanism which facilitates both consumer and commercial business transactions, including purchases and cash advances. A credit card generally operates as a substitute for cash or a check and most often provides an unsecured revolving line of credit.

Why was the first credit card invented? ›

In 1950, the Diners Club issued their credit card in the United States. The Diners Club credit card was invented by Diners Club founder Frank McNamara as a way to pay restaurant bills. A customer could eat without cash at any restaurant that would accept Diners Club credit cards.

Why was the credit card developed? ›

Shortly after an engineer at IBM developed magnetic stripe technology in 1969, the card brands began incorporating it into credit cards to hold customer data used to facilitate transactions.

How did credit start? ›

The earliest and most common form of credit were loans from local shopkeepers. That's right, hardworking Americans ran tabs to buy groceries, furniture, farm equipment and the like when times were tight. It's also a common myth that borrowing was unheard of during those days.

When were credit cards first widely used? ›

In 1950, the Diners Club card became the first store card to gain widespread use after founder Frank McNamara was inspired by leaving his wallet at home while out dining. He and a partner, Ralph Schneider, launched the first Diners Club card, widely considered to be the birth of the modern charge card.

Did credit cards exist in the 70s? ›

Retail-based cards – such as from major department stores – were the most commonly held cards in the early 1970s. Bank-issued cards exploded in popularity in the decades to come.

How did credit cards work in the 1950s? ›

The first credit-card-like payment method showed up in 1950 when Ralph Schneider and Frank McNamara founded Diners Club and issued its first cards. But this wasn't truly a credit card. Instead, it was a charge card that required the cardholder to pay the entire balance off each month.

When was the first bank card issued? ›

In the US, debit cards landed nearly ten years earlier in 1978, thanks to The First National Bank of Seattle. Though according to Kansas City Federal Reserve, the first US debit card may have hit the market as early as 1966 thanks to The Bank of Delaware.

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