The Five Ws of the Credit Card

The Five Ws of the Credit Card

We all have had them, used them heard about them, read about them, knew someone who knew someone that had them, so it is no big secret. The credit card or more correctly the credit / debit card. The monetary miracle panacea. But what do we really know about that little roughly three inches by two inches plastic monster living inside so many wallets worldwide? Answering this has been relegated to the confines of this article and I will be doing just that by following the tried-and-true journalistic method of the five w’s. Yes, this is the who, what, where, when, and why of the credit card.

The Credit Card ‘Who’

One of the first questions, as obvious as it may be, often to be asked is who actually issue credit cards. And the answer is pretty simple and straightforward. The main institutions that issue credit cards come out of the financial sector, banks and credit unions. An added layer of complexity comes into play sometimes when people confuse credit card companies as a bank or credit union – take for example Visa.

Visa, itself, does not issue credit cards nor does it set any of the rates associated with credit cards. What Visa does do it offer its own branded products to banks or other financial institutions who then extend credit and rates. Many times, separate credit card companies will be setup to handle all the processing and billing for a credit card – servicing the card holders’ account.

Finally, many businesses, for instance retail stores, also issue credit cards – known as store credit cards. Although the vast majority of these cards are co-branded, that is they are issued jointly by the store and a bank or other financial institution. So once again it is generally the bank that is extending the credit and not the store directly.

The Credit Card ‘What’

What exactly is a credit card?

 One would think this is a pretty straightforward and simple answer – and it is. According to Investopedia, “credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company.”

What is the difference between a credit card and a charge card?

The terms (credit and charge) on the surface seem interchangeable – and in practice they are used in that manner. However, I bet you didn’t know that there is a difference, and it is kind of a big deal. According to the Wallethub, charge cards must be paid at the end of the month in full; whereas with a credit card one only needs to make a minimum payment and may carry forward a balance to the next month.

What are credit cards used for?

Also, according to the Investopedia website, credit cards allow “cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment.”

What types of credit cards are available?

The genre of credit cards has exploded since their inception in the early 1950’s and they can be found in a variety of business sectors and uses. The folks over at Experian list and explain a multitude of versions of the credit card including but not limited to, Rewards, Premium Rewards, Big Purchases, Transferring Debt, Student, Bad Credit, Establishing Credit, Retail, Charge, Gasoline, and Business to name but a few!

The Credit Card ‘When’

When did the use of credit start?

Most of us don’t really give the concept of credit a second thought. It has always just been there. And we all learned late in high school that it was important and something we needed to establish and keep in good standing. Good credit would be our gateway to a brighter and more comfortable future. But if you stop to think about it, when did credit start?

According to Mr. Jonathan Kenoyer, a historian, credit (defined as “a valueless instrument to represent banking transactions”) existed some 5,000 years where the Mesopotamians used tablets made of clay to conduct trade with the Harappans. Using clay tablets to keep track of financial transactions was far more efficient then traveling with immense quantities of copper coins. This practiced continued through the 1800s when the clay tablets had evolved into credit coins or charge plates.

When did the credit card first appear?

As it has been stated already, credit cards have had a fairly long and storied past. A case can be made that the first credit cards were the Mesopotamians’ clay tablets or the charge plates used by merchants in the 1800s ( where the merchant extended credit to customers that they trusted as a form of payment until those customers crops or cattle sold.)

The early 1900s bore witness to a small group of department stores and oil companies dispensing their own branded or proprietary cards. Then in 1946 a banker, John Biggins, issued a Charg-It card, where all charges would be forwarded to his bank where then his bank would reimburse the merchants and obtain payments from the card holders.

However, it is the 1950s Diners Club card that stakes claim to being the first credit card to be in pervasive use. Although if we are to get technical, the Diners Club card was not a true credit card – it was a charge card. The full balance amount of the card needed to be paid at the end of each month.

The Credit Card ‘Why’

Why was credit started?

As started early, the use of credit has been around for a very long time starting back some 5000 years ago. So why was credit needed? What was its purpose? Let’s find out. Historians and researchers believe credit was extended for agricultural consumer loans. With these ‘loans’ interest and laws (the Code of Hammurabi in 1800 BC Babylon) were developed. The Romans used credit for land purchases (Cicero sold 625 acres for 11.5 million sesterces – which wa11.5 million tons of coins) among other things.

As time trudged forward, credit and the laws surrounding it changed as well as the uses for it. Thus, the birth of credit reporting came about in England circa 1803. Credit evolution has continued until present day with credit being extended for a wide variety of consumer goods and services as well as what is reported on an individual’s credit report. It is virtually impossible to get a mortgage or car loan or a job with a poor credit report.

The Credit Card ‘Where’

Where was credit first implemented?

The use of credit can be traced back to ancient times. 5000 years ago, the Mesopotamians used clay tablets as a way to track financial information while trading. The Sumer civilization in 3500 BC used credit to extend agricultural loans. In 1800 BC Babylon, laws dealing with credit were first formalized. In 50BC the Roman empire used credit as payment for land transaction among other things. Reforms and advances to credit continued through the Dark Ages and into the 1800s in England right through the late 1800s in Atlanta, USA.

Where did the first credit cards appear?

The first things that resemble the modern-day credit card were introduced in the Old West in the 1800s. These charge plates allowed ranchers and farmers to get the supplies they needed and then pay for those supplies at the end of the month (technically making them charge cards and not credit cards) when their crops or cattle sold.

The early 1900s saw the advent of store specific credit cards. John Biggins, the Brooklynn banker, developed and issued the first bank Charge-It card in 1946. In 1950, Frank McNamara issued his Diners Club card in New York City. Californians were the proud recipients of credit card offers via mail from Bank of America starting in 1958. And now virtually every zip code in America and first world counties you can find credit cards and credit card offers.

Conclusion

And there you have it. As we worked our way, in the journalistic style asking the Ws, we learned that credit and credit cards have a very long and interesting history. From humble beginnings some 5000 years ago in ancient Mesopotamian right up into modern times, credit cards have almost been and become part and parcel to human existence.

In fact, it would appear that credit cards and virtual money (ie. cryptocurrencies) seem to be the wave of the future and it may not be long before cash and checks are totally phased out and go extinct like the dinosaurs. Although that is debatable, what is not up for debate is the history and the continued use and evolution of credit for modern day consumers.