The History of the Credit Card

It wasn’t always like this though; believe it or not there are many people alive today that were born in a time where credit cards did not exist! Before the advent of credit cards the only way for a consumer to get money was through a traditional loan. Traditional loans back then were only given out by banks and they always required some form of collateral. The bank still charged interest but it was a smaller amount since they took a large amount of the risk out of the equation through the collateral agreement.

Things changed however and in roughly the 1950s the first credit cards came out on the market. These were cards that were designed to allow a consumer to pay for a purchase through drawing credit from the card. The merchant was paid by the credit card company and the consumer paid the company back at a later date. There was no collateral involved and because of this the company charged a higher interest rate. The higher risk involved with this kind of money lending necessitated a higher reward and because of that the credit card companies felt that they needed the higher interest rate. Consumers on the whole didn’t mind though and the ones that always paid on time especially preferred the higher interest rate to the concept of collateral.

Fast forwarding twenty years down the road and the very first rewards programs began to come out. They were very small and usually ended with the consumer getting a free meal at a restaurant or something similarly simple but even this small gesture was enough to impress many consumers and credit cards slowly started to gain popularity. Eventually it started becoming the way of people in developed countries to start buying things now and paying for them later and once this mentality became far spread it was only inevitable that credit cards would be used in large amounts.

The advent of credit cards aimed at the younger generations (i.e. students) started getting people involved with credit cards at a younger age and because of that credit card companies really started to increase their bottom lines at rapid rates each year. At this point in the evolution of the credit card it became less about selling the idea of the credit card and more about competing with each other for the finite number of customers that still did not possess a credit card.

And that is where we stand today. More involved rewards programs are what credit card company’s work on now in an attempt to out duel each other for more customers. The idea of a credit card is strong and it is very unlikely that anything will happen soon to change that. Where does the evolution go next? That is what we must wait to find out.

Article correct at its author date: March 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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