When were credit cards invented?
August 24, 2023 7 min read
For many people, using a credit card has become second nature. When you stop for your morning coffee, you might pay with your card. When you need to get gas, there’s a good chance you swipe or tap your card for that too. Consumers have gotten so used to having them handy that it may seem like credit cards have been around forever.
But you might be wondering, “When were credit cards invented?” There is a long history of credit usage, but the first credit card came into existence in the middle of the 20th century.
A quick history of credit cards can show us how they have evolved to become what they are today.
- The credit card industry has evolved over time, with the concept of credit usage dating back to ancient times.
- The Diners Club card, invented in 1950, is known as the first modern-day credit card.
- As the credit card industry grew, new credit cards like American Express®, BankAmericard®, Mastercard® and Discover® emerged.
- The future of credit cards seems to point toward touch-free and digital transactions as security and user protections improve.
The history of credit credit cards
Before getting into credit cards, you may be asking, “When was credit invented?”
As far back as the 1700s, people have taken part in transactions that resemble how credit is used today. One example is between merchants and farmers. Since there were several months between the planting and harvesting of crops, farmers would often receive seeds from merchants by promising to pay the merchant back after harvesting the crops.
Credit coins and metal money
The exchange of goods for credit prompted the invention of credit coins and charge plates that consumers—like farmers—could use with certain merchants. These worked much like running a tab. Pretty soon, loyal customers could use credit at hotels and department stores, which issued their own credit.
The idea was similar to what we have today, where you may have a store credit card that can only be used at that retailer.
More advanced methods were invented in the late 19th and early 20th centuries when Western Union® provided select customers with metal plates that gave them the option to charge now and pay later.
Charg-It: The first bank card
In 1946, John Biggins, a Brooklyn banker, came up with the idea of the Charg-It card to bring new customers into the bank. People with an account at the bank could use their card at a few select merchants. The merchant would then send the receipts to the bank, and the bank would pay for the items purchased and later bill the customer for repayment.
The Diners Club card: The first modern credit card
Invented in 1950, the Diners Club card is known as the first modern-day credit card. The idea came from Frank McNamara, a businessman who’d forgotten his wallet while out to dinner in New York. He and his business partner, Ralph Schneider, would soon invent the Diners Club card as a way to pay without carrying cash.
The Diners Club card was first used only in local restaurants before expanding to include additional retailers. The new charge card required customers to pay the balance in full at the end of every month.
By 1951, the Diners Club boasted 42,000 members and had expanded to major U.S. cities. By 1953, it was accepted in Canada, Cuba, Mexico and the United Kingdom.
The evolution of credit cards
It wasn’t long before credit cards got popular and banks began issuing their own cards. But instead of requiring payment in full at the end of each month, consumers could have revolving credit in which balances rolled over from month to month.
Here's a quick rundown of some notable credit card issuers of the 20th century:
In the beginning, American Express made its name by transporting customers’ valuables and offering traveler’s checks. But in 1958, it launched its first charge card to give travelers more flexibility. In 1966, the corporate card for commercial travelers was created.
Launched by Bank of America® as the first consumer credit card in 1958, the BankAmericard was also the first card to offer revolving credit. In 1976, BankAmericard became Visa®—now a global corporation.
In 1966, a network of banks that accepted cards as payment formed the Interbank Card Association. Originally named Master Charge, by the 1970s it had become a global alliance called Mastercard International.
The Discover card was initially launched by Sears, Roebuck & Co. The first test purchase for the new Discover card was made on September 26, 1985, for $26.77. Testing for the card continued in Atlanta and San Diego until it launched publicly with its first television commercial during Super Bowl XX in 1986. Discover featured no annual fee and one of the first cash back rewards programs. In 2008, Discover acquired Diners Club International®.
Credit card advancements
Much has changed when it comes to credit cards.
Credit reporting and scoring
While some form of credit reporting predates the invention of credit cards, the two have become closely linked. The Mercantile Agency was founded in New York in 1841 as the first U.S. credit reporting agency. It collected information about borrowers and lenders across the U.S., but the results relied heavily on personal impressions and often led to discrimination.
The modern credit score—a three-digit number that reflects a borrower’s creditworthiness based on information collected by the credit bureaus—was launched by the Fair Isaac Company in 1952. The FICO® Score, which was introduced in 1989, would go on to become the industry standard. In 2006, VantageScore® emerged as an alternative to the FICO scoring models.
Early on, discriminatory practices were not uncommon in the credit card industry. Many companies wouldn’t provide credit cards to African Americans. And until 1974, women could only get a card with a male co-signer. Regulations didn’t exist before the 1970s, meaning there were no standards for calculating interest rates or protections for cardholders.
In 1970, the Fair Credit Reporting Act was introduced. This legislation required credit card companies to report information to credit reporting agencies accurately. The Equal Credit Opportunity Act followed in 1974, making it illegal for credit card companies to discriminate based on race and gender. That year also saw the passing of the Fair Credit Billing Act, which lets consumers dispute unauthorized charges on their bills.
In response to credit card companies’ high fees and penalties charged to cardholders, additional legislation was introduced with the Credit Card Accountability Responsibility and Disclosure Act of 2009. This law protects cardholders from deception by card issuers.
Before credit cards had a magnetic strip, cards were put on a machine, imprinted onto a charge slip and sent to a processing center where card information was put into a computer manually.
The magnetic strip was added in 1969 when an engineer from IBM developed it as a convenient way to process credit card information. It also added a layer of security that didn’t exist at the time. The magnetic strip soon became the standard, allowing the transmission of information around the world.
As security became a growing concern, new technology was developed to make credit cards even safer. The EMV—for Europay, Mastercard and Visa—chip generates a one-time code during a transaction to approve the purchase, making it a more secure form of payment.
Card issuers also introduced CVV codes as an added layer of protection, making it more difficult for fraudsters to use information gathered in a data breach.
In the 1980s, credit cards started to introduce rewards programs. The Diners Club card established its Club Rewards program and Citibank partnered with American Airlines. Rewards cards like these continued throughout the 1990s with co-branded deals and cash back offers.
Recently, touch-free credit card payments have become popular. According to Mastercard, it’s both faster and more secure than swiping your card. One reason for the increased acceptance of contactless payments is cleanliness. Today’s cardholders have become more aware of the need for more sanitary payment methods as a result of the COVID-19 pandemic, and customers are embracing the new technology over other forms of payment.
The invention of credit cards in a nutshell
The first credit cards offered a way to make payments at select stores without needing cash on hand. The idea spread across the globe and has been popularized by a number of banks and credit card issuers. Improved security and industry regulations have helped innovate the industry.
And as the credit card industry expands into touch-free payments and digital wallets, digital banking is quickly becoming the preferred payment method. As a result, consumers have many more options when choosing the types of credit cards to carry.
Are you ready to find the right credit card? First, see whether you’re pre-approved.