A Brief History of Credit CardsOnce upon a time, there were no credit cards. There were no plastic payment cards of any kind. Hard to imagine, right? We thought so, too, so we decided to look into the history of credit cards. Sit back while we take a moment to look back at what came before modern credit cards — and appreciate what we have access to today.

Buying on credit

People have probably always bought on credit. Imagine that you need to purchase something, but you don’t know what someone might trade for it. Do you carry everything they might possibly want with you? Imagine how cumbersome it would be to constantly carry everything you own that is worth trading. Do you instead visit your trading partner, ask what they want and return with the goods? That’s a lot of unnecessary travel, especially in the days before cars!

No, trading goods for the promise of future payment was a very early practice. Ancient agricultural societies like Sumer (4500 to 1900 B.C.E.) relied on buying with credit and settling debt at harvest time. There is even evidence of the regulation of interest rates as early as 1800 B.C.E. in the Code of Hammurabi, in which loans of grain had a maximum interest of 33.3% and loans of silver had a maximum interest of 20%.

Split tally sticks, charge coins and charga-plates, oh my!

Although these versions of credit and interest may have worked in the past, to have a system work on credit, it’s critical to keep a record of what is owed to whom. One of the earliest ways of recording credit used in the Medieval era was the split tally stick. Remarkable in its simplicity yet infallibility, a merchant and creditor would take a stick, notch it all the way around to indicate the amount of debt and then split it in half. The creditor and debtor would each take half of the stick. This process made it very difficult to falsify because both halves needed to match in grain and notching.

In general stores, oil companies and hotels in the early 19th century, customers would have credit attributed to their names and would pay off their debt seasonally. Later, in the 1920s, many of these establishments started to use coins and tokens of various materials to print a customer’s charge number. The charge number could then be easily recorded onto paper using ink or graphite.

However, because these tokens didn’t feature the customer’s name, image or signature, they could easily be used for fraud. Thus, the Charga-plate, a more card-like token, was born in 1928. The Charga-plate was a 2 1/2″ × 1 1/4″ rectangle of sheet metal etched with the owner’s name, city and state. However, these plates could only be used at the store they were issued from, meaning consumers had to carry a number of plates with them.

Enter the foodie

The first card to be accepted at a variety of establishments came about because of one man’s desire to dine out. Frank McNamara was eating at a restaurant and when it came time to pay, he realized he had forgotten his wallet. Although his wife was able to pay for the meal, Frank resolved to never risk being unable to pay his bill again. Inspired by the incident, he created a small cardboard card to pay for his meals. In 1950, this card, the Diners Club card, became an accepted form of payment for meals and hotel stays throughout the New York area.

The Fresno drop

Even with the Diners Club card, cardholders weren’t able to use one card for any and all purchases. The general-use card, a card accepted at all kinds of institutions, had extra hurtles. To get merchants to accept a card (and pay a fee), the card issuer would need enough customers to make it worth the cost. Yet, to get consumers on board, cardholders needed to be confident their card would be accepted in a lot of stores. Quite the pickle! Bank of America broke this barrier in 1958.

In what came to be known as the Fresno Drop, on Thursday, Sept. 18, 1958, Bank of America mailed out 60,000 BankAmericards to the inhabitants of Fresno, CA. They chose the town because, with 250,000 residents (45% of whom were Bank of America customers), Fresno had enough people to build a large consumer base while also having a limited number of vendors. At the same time, it was remote enough and small enough that a failed campaign wouldn’t crush Bank of America’s reputation.

The drop did cause some issues for Bank of America. (It resulted in a lot of fraud cases.) But, overall, it was successful in its goal. The BankAmericard became widely accepted in Fresno and the approach was spread throughout California. The rest of the United States followed in 1966.

A new kind of credit

While all the previous iterations were some form of charge card, the BankAmericard was the first card to use revolving credit. Rather than pay off their balance each month, cardholders could pay some of their debt and have the rest carried over to their next payment. In introducing this system, Bank of America also created credit limits, floor limits, the 25-day grace period and an 18% interest rate. These early standards are the foundations that issuers still work off of today.

Putting it on plastic

Still, the Diners card and the BankAmericard weren’t the plastic card we know today. Like other cards of their time, they were made of cardboard or paper. The first plastic card came from American Express (a NextAdvisor advertiser).

American Express has a long history that could merit its own article. A company founded in 1850 to compete with the Postal Service isn’t normally the one we would expect to innovate credit cards, but innovate it did. American Express expanded from mail delivery to money orders, traveler checks and, in 1958, it released its first credit card. Shortly after, it released the first plastic credit card in 1959. Other card issuers quickly followed suit.

The Magnetic Stripe

Still, there is something missing: the magnetic stripe that makes electronic transactions so quick and easy. While it may seem like a core part of the credit card, it has only been standard since around 1970. IBM initially conceived of adding a magnetic stripe to a plastic identification card in the early 1960s. The company intended it as an identification and security tool for the CIA. But IBM’s engineers struggled to find a way to attach the stripe to the card. One engineer, Forrest Parry, described the problem to his wife. Mrs. Parry, who was ironing clothes at the time, suggested that he do just that — iron the magnetic stripe onto the card. The idea worked! They were able to melt the magnetic stripes onto the cards.

IBM quickly saw the broader application of these cards. It worked with the airline and banking industries to make the magnetic stripe the U.S. standard for electronic payment. By 1969, it was. Two years later, most of the world used the magnetic stripe as their standard payment. As you likely know, magnetic stripes have been used for decades until EMV chip cards came along.

Credit card rewards

While store-specific customer rewards have a long history, the credit card reward systems we know today are all fairly recent. In 1981, American Airlines created the first modern travel rewards program for frequent flyers. Unlike earlier discount rewards, American Airlines AAdvantage rewarded fliers with American Airlines Advantage Miles. Other airlines quickly followed suit. A variety of other hospitality industries soon created their own loyalty rewards programs.

In 1986, Discover introduced the “cash back” rewards program. Consumers earned a certain percentage of their purchases back as a reward for spending with their card. By 2012, cash back was the most popular rewards system and highly tied to customer satisfaction.

Our present and future

That’s our brief coverage of the history of credit cards. Take a moment to appreciate our credit present. We have so many kinds of cards to choose from: 0% intro APR credit cards, balance transfer, cash back, rewards, secured cards and more. We can also look forward to the bright future of credit cards. From chips and purchasing via phone to rewards on popular streaming services, there are lots of exciting innovations on their way. Follow our credit card blog for the latest in credit card news.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.