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The History of Credit Cards: How Credit Cards Started

The History of Credit Cards: How Credit Cards Started
Jason Steele
Jason SteeleUpdated September 13, 2022
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Credit cards have become so fundamental to the way we shop that 83% of Americans had at least one in 2020, according to the Federal Reserve. How did credit cards become so popular? And how were they invented? Read on to learn about the history of credit cards, when the first card launched, the technical innovations that power today’s cards, and what credit cards might look like in the future. 

When Were Credit Cards Invented?

To understand credit card history, it helps to know what credit is and when it was first used. Credit is when money is loaned out on a revolving basis. The concept has been used for centuries, even though credit cards themselves didn’t yet exist. For example, for thousands of years, seeds were sold to farmers on credit. When a farmer’s crops grew and were sold, the seed supplier would be repaid. These types of transactions were typically verbal agreements or notes jotted down on paper. Then, in the early 1800s, merchants in the U.S. began using credit coins and charge plates. These metal items looked like dog tags, and they were used to give credit. At the beginning of the 20th century, Western Union started giving charge plates to some of its customers. But unlike modern credit cards, these were issued to customers only for use with certain transactions. 

Who Invented the Credit Card?

The first modern credit card was the Diners Club card, which was launched in 1950. This is another important moment in credit card history. The Diners Club card was apparently the brainchild of a man named Frank McNamara, who was dining at a restaurant and realized when the bill came that he had left his money at home. That gave him the idea for the first credit card, which he launched with his business partner, Ralph Schneider. Diners Club cards were issued to about 200 people and were accepted at select restaurants in New York City. The number of Diner’s Club users rapidly increased over the years. In 1958, Bank of America introduced the BankAmericard, which was the first credit card to give revolving credit. Unlike a simple charge card that needed to be paid off in full each month, this modern credit card was designed for users to finance purchases over time. 

Technical Innovation of Credit Cards

American Express was the first credit card issuer to offer plastic cards in 1959. Several years later, in the 1960s, IBM developed the magnetic stripe, which allowed credit cards to be electronically verified when used for purchases. In the 1990s, Europay, Mastercard, and Visa (EMV) smart chips were added to cards in Europe. This technology made its way to the U.S. in about 2010. Today, the majority of all credit card transactions in the U.S. are made with cards that are EMV equipped. Other recent technological innovations include contactless payments, in which you tap or hold the card near the credit card reader, and mobile wallet payments using credit card data stored in smartphones. Credit cards have also advanced beyond plastic. Many premium rewards cards are metal cards, and there are even some that are made of carbon fiber. Recommended: 10 Credit Card Rules You Should Know

Types of Credit Cards

While the technological developments of credit cards have been important for users, the many different types of credit cards you can get today may be even more consequential. 

Rewards Cards

Discover Financial Services was one of the first card issuers to offer cash-back rewards in 1986, which remains extremely popular to this day. Also in the mid-1980s, Continental Airlines and Marine Midland Bank launched the Continental TravelBank Gold MasterCard that provided frequent flier miles. American and Citi launched a similar card in 1987, as did United Airlines and First Chicago Corp.Today, there are credit cards that are co-branded with hotels and other travel providers, just as there are numerous store credit cards and charge cards. The best credit cards currently offer valuable rewards in the form of points, miles, or cash back. 

Low-Interest Cards

Although many credit card users enjoy earning rewards, credit cards with low interest rates have also become popular. There are numerous cards that offer 0% APR (annual percentage rate) promotional financing on new purchases, balance transfers, or both. It’s important to understand credit card terms like these to know exactly how credit cards work. Other credit cards offer low standard interest rates on purchases, often around 10% APR or less. These credit cards are offered to only the most qualified applicants, and they typically don’t have the rewards and benefits offered by cards with higher interest rates. 

Credit Building Cards

Credit card issuers report users’ balance and payment information to major consumer credit bureaus. This means that using a credit card responsibly can be a great way to build credit. One type of card that helps people with poor credit or a limited credit history is a credit-building card. For instance, there are subprime cards, which are designed for people with poor credit ratings. These cards come with higher fees and interest rates.Another type of credit-building card is a secured card. Secured credit cards work like other cards, but they require a refundable security deposit before the account can be opened. With responsible use, many secured card holders are able to build their credit within a year and qualify for a standard, unsecured card. When they close their secured card account, they will receive a refund of their security deposit. 

The Future of Credit Cards

There are several directions that credit cards could go in the future. Many card issuers are eager to get away from a physical card altogether. For example, mobile phones can store credit card information and transfer it wirelessly. And just like a credit card contains a chip for contactless payments, so can watches, bracelets, or clothing. Ultimately, there may be systems that require no physical devices whatsoever. A credit account might be accessed one day through biometrics. Users could scan their fingerprints, eyes, or even their faces and enter a Personal Identification Number (PIN) to complete transactions. Until then, the credit card, with its latest technology, will no doubt continue to be a popular form of payment that the majority of us use.

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About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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