Published in: Credit Cards | Dec. 11, 2018

When Were Credit Cards Invented?

By:  Lyle Daly

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Want to learn more about that card you use as a payment method? Here’s the lowdown on the invention of credit cards.

vintage photo of woman holding a piece of paper and writing in a book

Image source: Getty Images


Credit cards are a fixture in the average American’s wallet, with well over a billion cards in circulation throughout the country. It’s easy to forget that this wasn’t always the case.

There was a time when you couldn’t just whip out a piece of plastic (or metal) to cover a bill, and when the idea of earning cash back for spending money was laughable. If you’ve ever found yourself wondering where this all started, we’re going back to explore when credit cards were invented.

Precursors to the credit card

The idea of buying something on credit didn’t come about with the credit card. It was a common practice in the late 19th and early 20th century. Owners of general stores in rural communities would let locals purchase goods on credit and track this using an open-book system. Department stores and other businesses in the cities began doing the same.

To speed up the transaction process, stores started issuing charge coins to customers who had accounts with them. These coins included an account number, but not the customer’s name, so there was no protection if someone else used a customer’s charge coin.

Stores then moved on to charge cards made of paper or cardboard, until the arrival of the Charga-Plate in 1928. This metal card had the customer’s full name, city, and state on it.

Although all these items allowed customers to buy on credit, they would each only work with the issuing merchant.

The Diners Club card: One card, multiple merchants

The man most commonly credited with inventing the credit card is Frank McNamara. Legend has it that in 1949, McNamara was eating lunch or dinner and forgot his wallet. That gave him the idea for a charge card people could use across multiple restaurants.

In 1950, McNamara started Diners Club International with Ralph Schneider and Alfred Bloomingdale. The Diners Club card was the first card that could be used with different merchants -- in this case, it began with 27 restaurants that had agreed to accept it. It was a charge card, though, and the bill had to be paid in full at the end of each month. There was a 7% interest charge on every purchase, plus a $3 annual fee.

Diners Club International grew rapidly, adding more cardholders and participating merchants. Somewhat ironically, McNamara figured credit cards would be a flash in the pan, so he sold his stake in the company to Schneider and Alfred Bloomingdale for $200,000.

Bloomingdale proved to be far more prescient, even saying that credit cards would one day “make money obsolete.”

Bank of America introduces the first true credit card

In 1958, Bank of America released the first true credit card in Fresno, California. Its BankAmericard® was the first that worked at a wide variety of merchants and that offered revolving credit, meaning consumers didn’t need to pay their full bill every month.

The way Bank of America pulled this off was clever. Other banks had tried to release credit cards but had run into a catch-22. Consumers wouldn’t sign up for a card that wasn’t widely accepted, and merchants had no reason to accept a card without many existing cardholders.

So, Bank of America pulled off what became known as the Fresno drop. Since 45% of the people in Fresno used Bank of America, the bank mailed all of them a credit card simultaneously. That meant 60,000 new cardholders, enough that Fresno merchants agreed to accept the card.

The BankAmericard® expanded through licensing agreements with other banks, although Bank of America had to give up control of it in 1970. The licensees agreed to come together in 1976 and formed a company you’ll probably recognize -- Visa.

The evolution of the credit card

Other banks weren’t going to let the BankAmericard® take over the entire market, and several of them joined forces to launch the Master Charge card in 1966. If that name sounds familiar, it’s because Master Charge eventually became Mastercard.

While credit card payment processing and regulations on the industry developed throughout the 70s, it was the 80s when credit cards took off, as interest rates were down and spending was up.

That was also the decade when credit card rewards became a popular feature. First, it was credit cards tied to airlines’ frequent flyer programs. Then, it was cash back, which Discover started.

At this point, it’s better than ever to be a consumer, assuming you know how to use credit responsibly. Credit cards have become more than just a convenient way to pay for a lunch or dinner. You can literally earn thousands in travel rewards or cash back by choosing the right cards. Cash may not be obsolete, but credit cards are undoubtedly the most beneficial payment method.

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