The concept of a credit card can be dated back to the early and mid 1900s. There were actually a number of early iterations of what we know and use today as a credit card. Over the decades, these financial tools have evolved, and variations have multiplied.
Read on to learn about the major milestones in the history of credit cards and how this payment method came to be so popular, as well as what the future holds.
Invention of Credit Cards
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.” These metal plates were granted to a handful of customers and allowed them to push back payment until a later date.
The next version 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?
Here’s an overview of which types of credit cards were used when, from the first store card to the first international card.
First “Use Now, Pay Later” Cards
The Diners Club Card was the first card that gained widespread use. 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 U.S.’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 launched the nation’s second major bank card. Initially called the Interbank card and later the Master Charge, this card was renamed Mastercard in 1979.
First International Cards
The credit card soon went international, with Diners Club laying claim to being the first international credit card. 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 customers 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. Here’s 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 data concerning consumer credit reports.
• Also this year, the Unsolicited Credit Card Act was introduced. It prohibited 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. For instance, it stated that consumers have the right to dispute unauthorized charges, charges made due to errors, and charges when goods weren’t delivered and services not rendered.
• The Equal Credit Opportunity Act (ECOA) was passed as well. This 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 when collecting debt that is in default and handled by debt collectors. It limited calls from such agencies to between the hours of 8am to 9pm and prohibited contact at an unusual time or place. In addition, 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. Additionally, it 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:
1969: 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 (including Visa, Mastercard, 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 credit card chip technology offers greater security than magnetic cards, which can be copied. These days, the majority of credit cards in America have EMV (which stands for Europay, Mastercard, and Visa) 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 can grant greater security than physical cards, which can more easily be lost or stolen. Plus, smartphones have security features, such as fingerprint recognition and passcodes, which can provide higher levels of security.
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. You can 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.
Here are some more details on how credit cards work:
• Credit cards have an interest rate, expressed as annual percentage rate (APR). This represents how much interest you pay during an entire year and includes any fees and other charges along with the interest rate. 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.
• If 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 may also come with perks, such as rewards points and cash back. 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.
In terms of 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 build 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 of a balance you rack up relative to your total amount of credit available (aka your credit limit). 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% (10% is even better) 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
• Your mix of different credit types, which accounts for 10% of your credit score (more is better)
• Having a longer credit history, meaning accounts open for longer, can help build your score
• Not applying for too much new credit is also a way to build your credit score. Too many hard credit inquiries related to new lines of credit can make it seem as if you are more of a risk.
Types of Credit Cards
Today, there are a number of types of cards to choose from. Take a look at the different types of credit cards available.
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 and/or a multiple of that for certain types of purchases or ones made at specific retailers.
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.
Secured Credit Cards
If you have a low credit score, you might also look into a secured credit card, in which you put down cash, which becomes your credit card limit. Use these cards responsibly, and you may be able to graduate to a standard credit card.
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. Wearable payments, such as paying for goods and services with payment technology that’s embedded in a wristband, ring, or keychain, is another avenue being explored.
Additionally, the security protocols used in credit cards will continue to evolve. It’s anticipated that magnetic stripe cards will soon fall by the wayside and be replaced by biometric cards, which use fingerprints and chip technology to enhance security.
The Takeaway
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. One thing that probably won’t change is the importance of understanding how credit cards work, what your card agreement’s fine print says, and how to use these cards responsibly.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
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.
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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