History of Credit Cards

pft-historyofcreditcards (1)

Love them or hate them, credit cards are such a part of our lives nowadays it’s hard to imagine life without them. But they haven’t always been around—before the 1950s, credit cards were unheard of. Now, they have grown into multiple tiered credit cards. Are you curious about the history of credit cards and how they came to be so indispensable in our modern lives? Check out this timeline to learn about key moments in the history of credit cards, and get a look into the future, too.

1865: Charge Coins are Issued

Small coins, usually made of paper or a metal such as copper, aluminum, or steel, were issued to loyal customers by department stores to represent deferred payment. These can be considered the first store credit cards.

1928: The Charga-Plate is Introduced

By the early twentieth century, credit unions and oil companies began offering metal plates to customers that allowed them to defer payment. Next came a similar item that closely resembled modern credit cards: the Charga-Plate, a metal card that fit inside a wallet. It looked like a military dog tag with paper on the back for the cardholder to sign. Store clerks took an imprint of the embossed lettering on the cards to keep track of credit and purchases. These cards were issued by Western Union and used mostly by large retailers up until the 1950s.

1946: The First Bank Card is Created

New York banker John Biggins decided to move beyond metal cards to the “Charg-It” card. This card was the first issued by banks and worked very much like a modern credit card. A customer used the card to pay a merchant, the bank paid the retailer, and then the customer paid the bank later. These cards that appeared early in the history of credit cards were only used locally, not nationally.

1950: The Diners Club Card is Launched

The Diners Club Card was born after Frank McNamara was dining at Major’s Cabin Grill in New York City and he realized he left his wallet at home when it was time to pay. The story goes that to get out of washing dishes to pay for his meal, he instead signed an agreement with the restaurant to return and pay his bill the next day. This sparked his idea for the Diners Club Card, another early version of the credit card. Made from cardboard, the Diners Club Card was a charge card that allowed people to pay back dinner and other entertainment and travel costs later. It became the first charge card accepted beyond a single geographic location. It exploded in popularity in just a year and shortly after was accepted throughout the United States.

1958: Banks and Financial Institutions Release Credit Cards

The success of the Diners Club Card was catching. During the 1950s, several banks and other financial institutions began issuing their own credit cards, all of which worked very similarly to the cards we have today. They allowed customers to charge a number of different purchases on credit and were accepted nationally by any merchants willing to accept it.

The first card most like our modern-day version was the Bank of America BankAmericard, which had a spending limit of $300 and carried a month-to-month balance. This card charged customers a fee to use it. Initial cards were made from paper, and American Express released the first plastic credit card in 1959. Other newly formed credit card companies quickly followed: Carte Blanche, Diner’s Club, Discover, Visa, and more. Credit cards were widely used over the next decade.

1969: Magnetic Strips are Invented

The magnetic strips still used on the back of your credit card were invented in 1969 by an IBM engineer named Forrest Parry. He wanted to adhere a magnetic strip to a plastic card but couldn’t quite figure it out—he tried gluing it, but it just peeled off. When he complained about the problem at home, his wife suggested he try ironing it to the card. The iron was hot enough to adhere the strip without melting it.

The magnetic strip Parry invented was first used on CIA identity cards and eventually on credit cards as well. Introducing magnetic strips to credit cards allowed transactions to be computerized instead of processed manually. The strips became standard on credit cards nationally and internationally.

1970: Industry Regulations are Passed

Next up in the history of credit cards is the introduction of legislation meant to regulate the industry to protect consumers and avoid fraud. For example, card issuers weren’t clear about how interest rates were calculated, fraud was common, terms and conditions were non-existent. Also, women couldn’t qualify without a male co-signer. This lead to several acts passed by congress in the 1970s, including:

  • Truth in Lending Act: Standardized how APRs are calculated.
  • Fair Credit Reporting Act: Ensures information gathered by credit reporting agencies is fair and accurate.
  • Unsolicited Credit Card Act: Prevents card issuers from sending active cards to customers who didn’t apply for them.
  • Fair Credit Billing Act: Addresses predatory billing practices and permits customers to dispute billing errors.
  • Equal Credit Opportunity: Credit cards must be available to all who qualify, regardless of sex, race, marital status, religion, or national origin.

1990s: Rewards Programs Take Off

The first rewards programs were introduced in 1984 by Diner’s Club and 1987 by Citibank. Throughout the next decade, more credit card issuers used rewards and perks programs to attract customers. Popular rewards included signing bonuses, cashback, and deals with other brands. By 2001, American Express had the largest card-based rewards program in the world.

2009: The CARD Act is Passed

The Credit Card Accountability and Disclosure (CARD) Act was passed to protect customers from harmful lender practices. The law caps late fees, requires consistent billing practices, requires that credit card statements list penalties, prohibits marketing to young adults and college students, and more. The CARD Act has significantly reduced the cost of using a credit card over the past decade.

2011: New Tech Emerges

The invention of smartphones led the way to apps that can store credit card information and be used in place of a physical card. Google Wallet released the first mobile wallet in 2011, and Apple Pay followed in 2014. Adoption of mobile wallets by both customers and retailers was initially slow in the U.S. but has grown more widespread.

The Future of Credit Cards

The history of credit cards started with metal, paper, and cardboard cards. Plastic wallet-size cards are familiar now but may one day fade into the past with other historical cards. Phones and mobile wallets will continue to be used for contactless payment. In the future, you may also see credit payment through other methods, such as selfies, fingerprints, and retina scans. Whatever the future holds, credit payment and credit card issuers aren’t going away, and remember to be prepared for new ways to pay.