The history of the credit card and companies that issue them dates back to the 1890s, or the 1920s, depending on whom you talk to. Since the European credit cards of the late 19th century were technically not the same type of arrangement as defined by the modern American credit card, we’ll begin our history with the post World War I era of the 1920s.
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The Federal Reserve Board defines a credit card as a payment device used to purchase products or services when you do not have the cash on hand. Based on this definition, it’s fair to make the distinction that there really are two types of credit cards, charge cards and revolving credit cards. The earliest form of the American credit card issued in the 1920s was a charge card. Revolving credit cards didn’t come on the scene until the 1950s.
A charge card, as defined in the 1920s, was a method of establishing a line of credit to purchase goods or services directly from merchant.
If you’ve heard the phrase, “put it on my tab” in a movie or a TV show, you have a good idea of the concept behind the charge card.
When a consumer uses a charge card, he is essentially allowing the card issuer to pay for his products or services in exchange for repaying the card issuer in full at the end of the month. With a charge card, no balance is carried into the next month. A standard American Express card is one example of a traditional charge card.
Charge cards began being offered by hotels, gas stations, and other hospitality-based businesses after World War I as a means of appealing to America’s newly traveling public. The companies offering them could see the benefit of allowing travelers to use credit rather than having to carry cash to pay travel expenses. Establishing the credit card was a great way to encourage travelers to stay in your hotel or buy your gas.
Revolving Credit Cards
A revolving credit card is another means of establishing credit when purchasing goods and services. However, the credit is not established between cardholder and merchant; it is established between cardholder and card issuer. Whenever you use your revolving credit card, the card issuer pays the merchant directly and then collects the money from you. A revolving line of credit allows the cardholder to carry a balance from one month into the next.
Revolving credit cards were introduced to the American market in the 1950s. They were designed to help World War II veterans and their families take advantage of a booming economy. Revolving credit cards remained largely an American phenomenon until the early 1990s, when they eventually spread across the globe as the technology to manage them became available in other countries.
The First Revolving Credit Card
Historians disagree over who issued the first revolving credit card. Some point to the Diners Club card invented by the founder of the Diners Club, Mr. Frank McNamara. An op-ed piece published by Bloomberg in October 2011 claims the card first came about in 1950, while the first bank card was issued in 1958 by BankAmerica Card. American Express also issued their first card a couple of months prior to BankAmerica in 1958.
Based strictly on the definitions of a charge card and a revolving credit card, it appears as though BankAmerica was the first to issue revolving credit. Both Diners Club and American Express were charge cards in every sense of the word.
Only the BankAmerica card allowed consumers to carry a balance from one month to the next, it was also the only credit card at the time with preset spending limits. Charge cards had no spending limits because it was assumed customers would pay the bill in full at the end of the month.
When Merchant Revolving Credit Cards Began
The BankAmerica revolving credit card proved to be such a hit it wasn’t long before other banks and individual merchants began offering their own. By the early 1960s, department stores began issuing revolving credit cards and giving cardholders special incentives to use them. Gas stations, airlines, and other businesses likely to have high ticket items all jumped on board as well.
Today credit cards are fast becoming the most favored form of payment around the world. With the ability to use them in virtually any industrialized nation there’s no need for consumers to carry cash or checks anymore.
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