History of Credit Cards: When Were Credit Cards Invented?

By Jackie Lam · May 10, 2022 · 8 minute read

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History of Credit Cards: When Were Credit Cards Invented?

Curious to know when credit cards were invented? There were actually a number of early iterations of what we know and use today as a credit card, with the first versions of the concept dating back to the early and mid 1900s.

Let’s take a look at the major milestones in the history of credit cards and how this payment method developed.

Invention of Credit Cards

Who invented credit cards? As mentioned before, there were several precursors to the modern version of the credit card. Credit card history can be traced back to 1914, when Western Union rolled out the idea of “Metal Money,” which was granted to a handful of customers and allowed them to push back payment until a later date.

The next iteration of credit cards was introduced in 1946, when New York City banker John Biggins introduced the Charg-it card. These charge cards were usable within a two-block radius of Biggins’ bank. Purchases made by customers were forwarded to his bank account, and merchants were reimbursed at a later date.

Recommended: Charge Cards Advantages and Disadvantages

When Were Credit Cards First Used?

Let’s take a look at when different types of credit cards were first used, from the first store card to the first international card.

First Store Cards

The first store card that gained widespread use was the Diners Club Card. The idea for the card arose when businessman Frank McNamara misplaced his wallet and couldn’t pay for dinner at a New York City restaurant. The good news is that his wife was there to cover the tab.

In 1950, McNamara returned to the same restaurant with his business partner, Ralph Schneider, where he used a cardboard card to pay the bill. That card was the Diners Club Card, and the dinner became known as the “First Supper.”

First Bank Cards

In 1958, American Express developed its first credit card that was made of cardboard. The next year, the plastic credit card was developed and released.

Also in 1958, Bank of America mailed its credit card to certain segments of the market in California, where it was based. The bank offered a pre-approved limit of $300 to 60,000 customers in Fresno.

Then, in 1966, Bank of America’s BankAmericard became the country’s first general use credit card, meaning more places would accept credit card payments with it.

First Interbank Cards

In 1966, a cluster of California banks joined together to form the Interbank Card Association (ITC). The ITC soon rolled out the nation’s second major bank card. Initially called the Interbank card and later the Master Charge, this card became Mastercard in 1979.

First International Cards

The first international credit card is claimed to be the Diners Club card, mentioned above. It’s said to have become the first globally accepted charge card in 1953 when businesses in Cuba, Mexico, and Canada began accepting payments from those with Diners Club cards.

And in 1970, Bank of America rolled its BankAmericard on a global scale, prompting the formation of the International Bankcard Company (IBANCO).

Regulation and Litigation

Over the decades, credit cards have undergone several rounds of regulation. Let’s take a look at some of the major regulatory milestones in the history of credit cards:

1970:

•   The Fair Credit Reporting Act was passed to regulate the collection, access, and use of consumer credit report data.

•   Also this year, the Unsolicited Credit Card Act was introduced to prohibit credit card issuers from sending credit cards to customers who didn’t request them.

1974:

•   The Fair Credit Billing Act of 1974 was created to protect consumers from unfair credit billing practices. It stated that consumers have the right to dispute unauthorized charges, charges made due to errors, and charges when goods are undelivered and services not rendered.

•   The Equal Credit Opportunity Act (ECOA) was passed, which prevented lenders from discriminating against credit card applicants based on gender, race, age, religion, marital status, national origin, and whether you receive benefits from a public assistance program. It also specified that a lender can’t charge higher fees or a higher than average credit card interest rate for any of those reasons.

1977:

•   The Fair Debt Collection Practices Act was introduced to prevent debt collectors from using deceptive, unfair, or abusive practices in their efforts to collect debt that have gone to default and are in the hands of debt collectors. It limited calls to between the hours of 8 a.m. to 9 p.m. and prohibited contact at an unusual time or place. Further, it specified that if you’re represented by a debt attorney, the debt collector must stop calling you and reach out to your attorney instead.

2009:

•   The CARD Act boosted consumer protection by “establishing fair and transparent practices related to the extension of credit.” It prohibits credit card issuers from offering credit without first gauging the consumer’s ability to pay, and introduced special rules when it comes to extending credit to consumers under the age of 21. The CARD act also limits the amount of upfront fees an issuers can charge during the first year after an account is opened, as well as the instances that issuers can charge penalty fees.

Technological Evolution of Credit Cards

Here are some of the main technological milestones and changes of credit cards throughout their history:

1980s: Magnetic Stripe
Credit card networks and banks started rolling out cards with the magnetic stripe, which became widely adopted. While it’s on the verge of being phased out, consumers still use magnetic stripe for payment today.

2004: Contactless Credit Cards
Contactless credit was used for the first time in 2004. They started to become more popular in 2008, when major credit card networks like Visa, Mastercardm and American Express started offering their own versions of contactless cards.

2010: Chip Cards
Pin-and-chip technology made its way to America in 2010. This technology offers greater security than magnetic credit cards, which can be copied. These days, the majority of credit cards in America have EMV chips.

2011: Mobile Wallets
In 2011, Google introduced the first mobile wallets, and Apple followed in its footsteps in 2012. In 2014, Apple Pay was released, followed by Android and Samsung Pay in 2015. As mobile wallets are stored on your smartphone, they grant greater security than physical cards, which can be more easily stolen. Plus, smartphones have security features, such as fingerprint recognition and passcodes, which make them more secure.

How Do Credit Cards Work?

Credit cards are a tangible card that you can use to make purchases. If you’re wondering how credit cards work, they’re a type of revolving loan, which means that you can tap into your line of credit at any given time to borrow funds up to your credit limit, which is set when you apply. Your line of credit gets depleted when you make transactions, and it gets replenished when you pay back what you owe.

Credit cards have an interest rate, expressed as annual percentage rate (APR). This represents how much interest you pay during an entire year. You’ll only pay interest if you have a remaining balance after your payment due date. When you pay the full balance that you owe on your card, your balance is zero and you will not owe interest. When you pay more than you owe, or if a merchant issues you a refund for an amount larger than your total balance, then you have a negative balance on your credit card.

Credit cards might also come with perks, such as rewards points and cashback. Cardholders may also enjoy additional benefits like travel insurance and discounts at select merchants. Credit cards also have built-in security features, such as pin-and-chip technology, fraud monitoring, and a three-digit CVV number on a credit card.

As for how to apply for a credit card, you’ll first want to know your credit score, as this will indicate which cards you may be eligible for. You may consider applying for preapproval to determine your odds of getting approved. When you’ve compared your credit card options and decided which one is right for you, then you can apply online, over the phone, or through the mail.

Credit Cards and Credit Scores

Credit cards can have a major impact on your credit score. For one, your account activity is reported to the three major credit bureaus: Equifax, Experian, and TransUnion.

Making on-time credit card minimum payments can help your credit, as payment history makes up 35% of your FICO consumer credit score. On the flipside, making late payments can drag down your score.

You’ll also want to keep an eye on how much debt you rack up relative to your total amount of credit available. Your credit utilization ratio, which measures how much of your available credit has been used, accounts for 30% of your score. It’s generally recommended to keep your credit utilization below 30% to avoid adverse effects to your credit score.

Other factors related to how your credit card can impact your score include the length of your credit history, which makes up 15% of your score, and your mix of credit, which accounts for 10% of your credit score. Having an account open for longer and holding a mix of different types of credit accounts both can help boost your score.

Types of Credit Cards

Nowadays, there are a number of types of cards to choose from. Let’s take a look at the different types of credit cards in modern times.

Rewards Cards

Rewards cards feature a way to earn rewards through travel miles, cash back, or points. You usually collect rewards when you make purchases. For example, you may earn one point for every dollar spent.

You usually can redeem the rewards you earn in different ways, such as on travel accommodations, airline tickets, gift cards, merchandise, or as credit toward your balance statement.

Low-Interest Cards

As the name suggests, low-interest cards feature a low APR. Having a card with a low APR can certainly benefit you if you carry a credit card balance or plan to use your card to make a large purchase, as you may be able to save money on interest.

When looking for low-interest credit cards, you usually need to have a strong credit score to qualify.

Credit Building Cards

If you have a short credit history or less-than-stellar credit score, a credit building card can help you boost your credit. As payments made on a secured credit card are reported to the three major credit bureaus, using your card can help build your credit as long as you stay on top of your payments.

While these cards are more accessible than many other credit cards out there, they also tend to have higher interest rates and fees. They may also offer a lower credit card limit.

Recommended: When Are Credit Card Payments Due

The Future of Credit Cards

As demonstrated in the past few decades, credit card technology is constantly evolving to meet the needs and demands of consumers. The next time you reach your credit card expiration date, you could see an updated product in the mail.

It’s expected that contactless payments, which increased in popularity during the pandemic, will continue to proliferate. In the future, it may even become possible to make payments via voice command tools.

Additionally, the security used in credit cards will continue to evolve. It’s anticipated that magnetic stripe cards will soon fall by the wayside, getting replaced by biometric cards, which use fingerprints and chip technology to enhance security.

Apply for a SoFi Credit Card Online and Earn 2% Cash Back

As you can see from learning the history of credit cards, a lot has changed since the payment method was first introduced. Credit cards remain as popular a payment method as ever, and it’s expected they’ll continue to evolve as technology and consumer needs shift.

When you’re looking for a credit card, it’s important to consider what features you want it to have and how you’d like it to serve your needs. One option is to apply for a credit card with SoFi. SoFi cardholders earn 2% unlimited cash back when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back when redeemed for a statement credit.1

Learn more about the SoFi Credit Card.

FAQ

Who invented credit cards?

There were several early iterations of credit cards, so it’s difficult to pin down exactly who invented credit cards. The credit may go to businessman Frank McNamara and his business partner Ralph Schneider, who invented the Diners Club Card, the first store card to gain widespread use. However, there were more limited versions of credit cards around before that.

How were credit cards first used?

While the concept of paying by credit can be traced back to ancient civilizations, the first modern day example of paying with a credit card was the Diners Club card, which could be used at restaurants. However, this card had one major difference between modern credit cards: you had to pay off the balance in full each month.

What was the first type of credit card?

The first type of credit card was most likely the Diners Club card, introduced in 1950. It was the first credit card that could be used at multiple establishments.


Photo credit: iStock/DoubleAnti

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