January 22, 2013

The Evolution of the Credit Card

While it may seem completely foreign to the current 18 to 35 demographic, there was a time when credit cards did not exist at all; and when they did come in to being, they were not treated as casually as they are today. While individual merchants issued credit accounts as early as the 1920s, the first card that could be used to pay multiple merchants in a similar conceptualization to the modern credit card was the Diners Club card, a card designed for the wealthy and members of high society to charge travel, entertainment and dining expenses. Unlike modern credit cards, the statement of a Diners Club card required full payment each month. The company also created a subsidiary known as Carte Blanche. While Diners Club International, the company that originally founded the card, still exists, it is now a subsidiary of Discover Financial, having first been bought by the Citigroup in 1981 and later purchased by Discover in 2008.

Worldwide Credit Networks Gain Popularity

In 1958, American Express created the first worldwide credit network, but the feasibility of a revolving credit network had been debatable until the release of the BankAmericard by Fresno, California's Bank of America in September of 1958. This card went on to be successful and recognizable as the first card which was designed to be used in the same manner as today's credit cards. The card eventually evolved into the branding of the Visa Corporation, one of the major credit card providers available today. MasterCard followed shortly thereafter as a competitor most notoriously backed by Citibank. Unfortunately, with the rise in popularity of credit, cards were distributed to those who misused them greatly. This caused a significant issue for the American banking system, causing a need for the change in the manner in which credit cards could be distributed. While credit cards could previously be sent unsolicited to anyone, under President Lyndon Johnson, the law was changed so that only applications could be sent without solicitation.

The Change in Credit Card Use

Despite the spike in disreputable use of credit cards in the 1960s, those who used credit accounts wisely chose to use cards only for large purchases and pay off the sum in installments as quickly as possible in order to free themselves of debt. While this is still a wise way to make use of a credit card, the attitude towards credit cards has changed significantly. As credit has become a primary form of currency in America, many people think nothing of making several major charges in a row and paying the minimum balance on a credit card. Transferring the balance of one credit card to another has also become a commonality. As such, people have been assigned credit scored by which their financial responsibility is assessed. Their credit scores can stop them from receiving credit cards, taking out loans, mortgaging homes, opening bank accounts and many other basic activities.

A Plastic World

In modern America, it is hard to comprehend the idea of walking into a business that does not take credit cards. While some small mom and pop shops and corner stores still do business strictly in cash, it is a strange thing indeed to see any major retail outlet turn away a credit card. For this reason, the use of credit cards has become second nature, creating a serious debt crisis in America. The amount of Americans in debt is overwhelming, and the credit card culture that the country has created assures that the likelihood of this changing any time soon is as slim as the tiny plastic cards that started it all. Though it is extremely unlikely, even near impossible, to imagine that credit card use will decline to pre-1950s levels, it may in fact be wise for Americans to begin curtailing their reliance on credit; we may be long past the days of ‘cash only,’ but there is a very good chance that we’ve gone too far in the other direction, and would benefit from stepping away from the plastic for a bit.

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