By Ben LuthiThe History of Credit Cards
By Ben Luthi
Quick Answer
Humans have used some form of credit since the 18th century, but credit cards in their current form can be traced back to the late 1800s.
Since their inception, credit cards have become a cornerstone of the American economy. According to Experian data, consumers carry $1.23 trillion in credit card debt, with an average credit card balance of $6,768.
While people have been borrowing money since ancient times, paying with plastic is a relatively new phenomenon. Credit cards trace their modern roots back to the late 19th century, but they didn't really take off until the 1950s. If you've ever wondered how the modern-day credit card began, here's a short history.
When Was Credit Invented?
For thousands of years, merchants have used credit to help their customers finance purchases.
Some of the earliest written examples of a credit system include the Code of Hammurabi, named after the man who ruled Babylon (present-day Iraq) from 1792 to 1750 B.C. These laws established rules for loaning and paying back money, as well as how interest could be charged.
Historically, a loan was a financial agreement between a single borrower and a single creditor or merchant for a single transaction. Over time, some customers gained the option to "run a tab" with an individual merchant—effectively a revolving line of credit that could be continuously borrowed against and has no fixed payoff date. This is the equivalent of a modern store credit card that's not part of a larger payment network.
History of Credit Cards
Credit has come a long way since ancient times. In the modern era, credit has evolved from niche merchant tools into a foundational part of how Americans pay and borrow. Here's a look at the key milestones that shaped the modern credit card:
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1865: Charge coins
The first "credit cards" were actually coins made from metal or celluloid, which listed the issuing retailer's information and an account number.
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1914: Metal money
Western Union introduced one of the first metal charge plates. By the 1930s, many retailers issued their own form of metal money, commonly known as Charga-Plates.
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1934: Air Travel Card
The Air Transport Association and American Airlines introduced the Air Travel Card as a way for passengers to book immediately and pay later. Within a decade, 17 airlines offered the card.
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1946: Charg-It card
A Brooklyn-based banker created the first bank card to drum up new business. Customers could use the Charg-It card with select merchants and be billed later.
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1950: First modern credit card
Diners Club rolled out its card, commonly recognized as the first modern credit card, available for use at several retailers.
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1969: Magnetic stripes
First attached to a credit card by an engineer at IBM, the magnetic stripe gave credit cards fraud protection that didn't previously exist.
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1984: First credit card rewards programs
Diners Club created the first rewards program, Club Rewards.
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1994: EMV chips
Europay, Mastercard and Visa partnered to develop EMV chip technology in Europe to provide an extra layer of security beyond magnetic stripes.
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1995: First contactless payment
The first contactless payment card was introduced in Korea.
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2008: Mobile wallet
Mobile wallets began appearing in the Apple App Store with apps created by third-party developers.
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Modern Credit Cards
With charge coins, metal money, the Air Travel Card and the Charg-It card paving the way, the first modern credit card was introduced in 1950. Over the next few decades, the industry expanded with other notable credit cards. Here are some of the trailblazers.
Diners Club Card
The first modern-day credit card was born out of happenstance: Businessman Frank McNamara forgot his wallet while dining out. His wife footed the bill, but McNamara returned a year later with a small cardboard card, the first iteration of the Diners Club card.
The Diners Club card was the first general-use charge card. Cardholders could use it at hundreds of restaurants, hotels and car rental agencies, and then pay their bills in full at a later date each month. Users would pay $5 annually for the service, and merchants would pay a 7% fee on charges.
American Express Cards
American Express, which had already been in business for more than a century as a freight and financial services company, introduced its first charge card in 1958. The first transaction was processed using handwritten forms that the merchant needed to mail to the company. Just a few years later, the company began issuing embossed plastic cards.
BankAmericard
Also in 1958, Bank of America launched BankAmericard, the first consumer credit card that allowed cardholders to revolve a balance from month to month. The BankAmericard brand was later spun off from the national bank and renamed Visa in 1976, but the BankAmericard credit card remains an offering by the bank.
Master Charge Card
In 1966, a network of banks formed a joint venture called the Interbank Card Association, releasing a card named the Master Charge. Later, the company absorbed the Everything Card by First National City Bank—now Citibank—and eventually became known as Mastercard in 1979.
Discover Card
In 1986, Sears, Roebuck and Co. launched the Discover Card, announcing the card in a Super Bowl commercial. The card offered one of the first cash back rewards programs. Discover was spun off as a separate company in 1993.
The Evolution of Credit Card Technology
Although the credit cards we carry today don't look much different than they did decades ago, looks can be deceiving. Some of the most impactful innovations in credit card technology improved both convenience and security in subtle (and sometimes hidden) ways.
Magnetic Stripes
Developed in the 1960s, magnetic stripes with encoded card information would become the standard for many decades. With the introduction of more secure technology, however, card issuers are starting to phase out the use of magnetic stripes.
Card Verification Value (CVV) Codes
CVV codes are three- or four-digit codes printed on credit cards that add extra security for transactions where the card isn't present—for example, online purchases. Mastercard was the first to add CVV codes to its cards in 1997, and other payment processing networks followed suit over the next few years.
EMV Chips
Embedded EMV smart chips allow for encrypted, two-way authentication between a merchant's credit card terminal and the payment processing network. The technology also uses one-time-use tokens that are unusable by identity thieves.
EMV technology was first developed in the 1990s and enjoyed widespread adoption in Europe shortly afterward. However, it didn't become the standard in the U.S. until the mid-2010s.
3D Secure
This authentication protocol adds an extra verification step for online purchases. Depending on the card issuer, cardholders may be asked to enter a one-time passcode sent via text message, confirm their identity through a biometric check or answer a security question.
Visa pioneered the technology, launching Verified by Visa in 2001, and other major networks developed their own versions, including Mastercard SecureCode and American Express SafeKey.
In October 2016, EMVCo—the standards body owned by Visa, Mastercard, American Express, Discover, JCB and UnionPay—published the 3D Secure 2.0 specification, which improved fraud detection using additional data points and enabled a smoother, often invisible checkout experience.
Near-Field Communication
NFC for short, near-field communication uses radio waves to allow two devices to communicate with each other wirelessly when they're physically near each other. As with EMV chips, data transmitted via NFC is encrypted to prevent fraud.
The technology is used by digital wallets like Apple Pay and Google Pay, as well as contactless credit cards with a tap-to-pay feature.
Virtual Card Numbers
Some card issuers allow you to generate a unique card number for online purchases, which keeps your actual account number hidden from merchants.
If a virtual number is compromised in a data breach, you can simply delete it without needing to replace your physical card. Many issuers also let you set spending limits or lock a virtual number to a specific merchant.
The Future of Card Technology
Wireless payment technologies are rapidly integrated into smartphones, watches and other wearable platforms. It's unclear what the next major step in credit card technology will be, but some foresee a day when biometric authentication allows consumers to make purchases using a fingerprint or retinal scan without having any object that contains their account information.
Key Credit Card Legislation
The early history of credit cards was somewhat of a Wild West because few regulations existed for the fledgling industry. Between 1968 and 2009, Congress passed several major laws that helped regulate the credit card industry, along with other forms of credit:
- Truth in Lending Act (TILA): TILA, enacted in 1968, created sweeping regulations to protect consumers against unfair credit card and billing practices. Most importantly, it requires lenders to provide consumers with accurate loan cost details.
- Fair Credit Reporting Act (FCRA): The FCRA was passed in 1970, requiring credit card companies to report accurate information to the credit reporting agencies.
- Equal Credit Opportunity Act (ECOA): Passed in 1974, the ECOA prohibits credit card issuers and other lenders from making credit decisions based on the applicant's race, color, religion, national origin, sex, marital status, age or usage of public assistance, among other things.
- Fair Credit Billing Act (FCBA): Another regulation enacted in 1974, FCBA created billing practices for the industry, particularly when it comes to acknowledging billing complaints and investigating errors. The law also limits a card user's liability for unauthorized purchases.
- Fair Debt Collection Practices Act (FDCPA): Enacted in 1977, the FDCPA regulates how third-party debt collectors can pursue unpaid debts, including credit card balances. It prohibits harassment, false statements and unfair practices, and it also gives consumers the right to dispute debts and request verification.
- Schumer Box: An amendment to the TILA, the Schumer Box legislation requires credit card companies to use a standardized table summarizing a card's rates and fees, making them easier to read and compare.
- Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA): Passed in 2005, BAPCPA made it harder for consumers to discharge credit card debt through Chapter 7 bankruptcy by introducing a means test. It also requires card issuers to include a minimum payment warning on monthly statements, showing how long it would take to pay off a balance by making only the minimum payment.
- Credit Card Accountability, Responsibility and Disclosure Act: The Credit CARD Act was passed in 2009 as a comprehensive amendment to the TILA. The law limits how and when credit card companies can charge interest and fees, provides a minimum grace period for interest-free in-full payments and creates protections for consumers under the age of 21, among other provisions.
Invention of Credit Scores
The first standardized system for evaluating a consumer's creditworthiness was introduced by the Mercantile Agency in 1841. However, the system was considered flawed due to the subjective judgments it made about borrowers.
The Fair Credit Reporting Act of 1970 later established the legal framework that shaped the modern credit reporting industry, including requirements for accuracy, consumer access and dispute rights.
The Rise of the Big Three Credit Bureaus
As the consumer credit reporting industry grew throughout the later 20th century, an industry with thousands of local and regional credit bureaus evolved into three national agencies: Experian, TransUnion and Equifax.
These bureaus collect and maintain credit information on hundreds of millions of consumers and supply the data that powers modern credit scores.
The FICO® ScoreΘ
As the consumer credit reporting industry grew, attempts were made to quantify credit report information in an easy-to-understand way. In 1956, Bill Fair and Earl Isaac founded Fair, Isaac and Co. Now known as FICO, the company developed its first credit scoring system in 1958. However, it wasn't until 1989 that the FICO® Score started being used by lenders to evaluate borrowers.
The FICO® Score quickly gathered steam to become the most widely used credit scoring model, utilized by 90% of top lenders, according to FICO. It's also undergone several updates to provide more fair and predictive information about consumer credit profiles.
VantageScore®
In recent years, the VantageScore credit score—developed in a 2006 joint venture by Experian, TransUnion and Equifax—has emerged as an alternative credit scoring model. Additionally, some financial technology companies have pioneered the use of nontraditional credit information, including income and expenses, as well as other factors.
Frequently Asked Questions
The Bottom Line
While credit cards can trace their roots back more than two centuries, the payment method we know today has only been around for a little more than 70 years. Since then, legislators have created various consumer protections for credit card users, and credit card companies have developed an array of incentives for consumers to use their products for everyday spending.
While credit cards offer convenience, security, rewards and perks, they also generally carry a higher interest rate than loans and other types of debt. What's more, maintaining a high balance on one or more of your credit cards can damage your credit score if it raises your credit utilization ratio. That said, using a credit card responsibly can help you build credit.
To take advantage of the benefits credit cards have to offer while minimizing their potential downsides, make it a priority to maintain a low balance and to pay that balance in full each month. You can also monitor your credit regularly to understand how your credit card usage impacts your credit score and get insights on how to improve and maintain good credit.
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About the author
Ben Luthi
Ben Luthi has worked in financial planning, banking and auto finance, and writes about all aspects of money. His work has appeared in Time, Success, USA Today, Credit Karma, NerdWallet, Wirecutter and more.
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