Latefee Avoidance

A Brief History of Credit Cards in the U.S.

Credit cards evolved from numerous techniques by merchants to extend credit to customers, to increase the merchantsí sales and profits. In the 1920ís, credit cards got started in the U.S. to enable car owners to fuel up on credit and for customers to make purchases in department stores, and in 1938 several of such limited type of credit-card issuers began honoring each otherís cards. For years, many retail merchants were allowing customers to buy on credit; paper or cardboard identification cards were issued to assist in identifying the customers and their account numbers, to help speed up the checkout and credit-granting process; and years later plastic credit cards were issued.

In 1949, entrepreneur Frank X. McNamara found himself unable to pay a NYC restaurant bill (because he had left his money in another pair of pants) and McNamara came up with the idea of paying merchants using a card, as a means of consolidating a number of merchant cards. The accounts represented by these cards were running accounts, where balances were not expected to be paid off. McNamara and his partner Ralph Schneider started Diners Club in March, 1950, as the first general purpose charge card, which differed from the existing merchant cards by requiring the monthly statement to be paid in full.

On October 1, 1958, American Express started its American Express Card. (In 1891, American Express had created their American Express Traveler Cheques, to enable world-wide travelers to obtain local currency in exchange for the American Express Travelers Cheques. These "Cheques" achieved world-wide recognition within a few years.) Also, in 1958, Bank of America started its BankAmericard, which evolved into the Visa system of credit cards. In 1966, a group of banks (that were extending credit) set up the MasterCharge credit-card system.

During the 50ís, 60ís and 70ís, banks were not allowed to open up across state lines, which meant that each state to which a person traveled had different banks, and the national credit cards (Dinerís Club, American Express, Visa and MasterCharge/MasterCard) allowed the extension of credit irrespective of what state a credit-card holder happened to be in and enabled them to obtain credit easily and immediately when their own bank was not in the area.

Checks, it must be remembered, often required up to 7 to 10 days or longer to clear back in the 50ís, 60ís and 70ís, unless a depositor cashed his own check in the bank where he had his account. Credit cards eliminated this problem, by giving money on credit, without waiting for a check to clear.