History of the Credit Card: Plastic Rags to Riches

How the First Credit Card Came to Be

In America, credit card history isn’t something most people think about. This is because credit, and thus credit cards, seem to be a timeless method of payment. However, the use of plastic payments is, for the most part, a twentieth century luxury. At the turn of that century, a well-organized system and practice of credit simply didn’t exist. Today, however, most habitually rely on the convenient use of plastic to secure a variety of services and items. So, how exactly did the phenomenon known as credit spread so rapidly and who is the person responsible for inventing the first credit card?

Early Systems of Credit

During the 1920’s, the use of credit was regularly practiced in both the hotel, as well as the oil industries who commonly extended credit to their fondest customers. This allowed patrons to pay for goods or services they purchased later. Initially, credit was offered directly from merchants to their consumers who, in turn, also directly repaid their debts back to the original merchant.

Mimicking the success of hotels and oil companies, stores eventually began offering credit to attract new customers and as a way of boosting existing customer loyalty. As a new credit concept began to grow in popularity with consumers, merchants formed groups based on agreements to do business with consumers by accepting credit purchases on cards from other stores within their group. This alliance allowed customers the luxury of shopping at a wider number of stores while using the same agreement they enjoyed with the original merchant.

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Early Charge Cards

John Briggins later created the charge card when he introduced the “Charge-It” program in the mid-1940s, which permitted merchants to directly deposit sales slips at their bank and, in turn, the bank would then bill that merchant’s credit customers. A few years later, the Diner’s Club card made it’s debut, allowing customers to dine at their choice of 27 restaurants in New York, and settle their bill later. Even though the “Charge-It” arrangement, as well as the Diner’s Club agreement share a role in the history, which laid the foundation for credit cards as we know them today, neither of these is considered to be a true credit program. At that time, customers had to pay the entire amount due at each billing. Obviously, this differs from the installment payments that credit card companies accept today. Such affords customers the opportunity to carry balances over several months. Each of these early programs, though, has its place in the invention of true credit cards, as these programs are the conceptual foundations upon which today’s credit system was eventually created.

American Express and Bank of America Take Credit to New Heights

In 1958, American Express offered their premier charge card with Bank of America debuting the Bankamericard later that year. Soon after this the Bankamericard was re-named as the Visa card and is actually the first credit card to be almost universally used by consumers and accepted by merchants across America, as well as other countries.

Credit Cards Then and Now

Recalling the invention of the credit card unveils a perfect illustration of how rapidly strong business ideas will spread and transform how business is done worldwide. In a short amount of time, the credit card became an incredibly popular and convenient tool that’s frequently used in the marketplace. Knowing their purpose, and how they came to exist, gives better perspective on their use and function today.