History of Credit Cards

Credit Cards and things you should know

Whether you are seasoned pro at using credit cards, or you’ve just signed up for your very first one, there’s plenty of things most people do not know about using them. From the beginning of credit card usage to using them today, there’s plenty of interesting information.

What you might not know about the history of credit cards
You might not know that the history of credit cards is actually quite fascinating. From junk mail, to Diner’s Club and lots of legal battles, credit cards definitely have a history.

The Original Idea
The original idea of a credit card came from Frank McNamara, who was head of the Hamilton Credit Corporation in 1958. He had a dining experience where he forgot his wallet and had the daydream of paying for his meal with credit instead of cash.

He launched his idea of the Diner’s Club card and it became an instant hit. It was limited to 28 restaurants and 2 hotels at the time, but that didn’t stop people from signing up. It became a status symbol and grew very rapidly.

But, it was just a fad to him
Although McNamara had instant success with the Diner’s Club card, he was convinced it would fizzle out. He sold his share of the company for $200k ($1.6M in today’s money). By the 1960s, there were over 1.3 million cardholders and the card became accepted everywhere.

It turned into junk mail
The first general credit card was sent as junk mail to 60,000 Californians with a credit limit of $300. A Bank of America employee, Joseph P. Williams, sent the unsolicited paper cards in the late 1950s. While the idea was seemingly brilliant, he ended up in big trouble. After over 2 million total cards were sent out, about 20% of the accounts became delinquent. This resulted in $8.8M loss for the bank and Williams lost his job as well.

What you might not know about using your credit card
Using your credit card is easy. Just swipe wherever your card is accepted, stay below your max limit and make your minimum payment. Beyond all that, there is another world of credit you might not know about it.

Your card doesn’t technically expire

Yes, there is an expiration date on your card, but that actually acts more like a placeholder. You can use your card after the expiration date, as long as you are not asked to enter in the card’s expiration date.

So what is the purpose of the expiration date? Well, it gives your creditor an idea when to issue you a new card (as you might know that those magnetic strips get worn out over time). It also serves as an extra confirmation when using your card online or over the phone when the merchant cannot physically view your card.

The first two numbers on your card mean something
If you thought your card’s numbers were just a toss up, guess again. The first two numbers on your credit card actually have a meaning! If they start with a 1 or a 2, your card comes from an airline. If yours start with number 3, it is for companies in the travel and entertainment industry. For instance, all American Express® and Diners Club cards start with a 3. Numbers 4 and 5 are for banking institutions. Number 4 is specifically for Visa and 5 for Mastercard. Number 6 is for merchandising and banking; 7 is for gas cards; 8 is for telecommunication companies; and 9 is used for national assignments.

You can say no to interest rate hikes
Is your interest rate going up? If so, you can say no, but you should say it politely and in writing. According to the the Credit Card Accountability and Disclosure Act, also known as CARD Act, you have the right of refusing to pay a higher APR. Send a written letter refusing to the pay higher amount and wait for a response. They might agree or they might lower your credit limit, raise your monthly payment or cancel your account altogether. Know your rights, but know what the outcome could be.

What you might not know about credit card companies

Interest is interesting

Credit card companies make money on the interest (if that isn’t obvious). They make a lot on interest, in the tune of $104 billion (with a B) or more each year! That includes fees too.

Other methods of making money
There’s more to the creditors profit than meets the eye. They also charge a fee to the merchant, usually about 2% of the transaction fee to accept the card. These are called interchange fees.

The other fees add up too. Fees like annual cardholder fee, cash advance fees, balance transfer fees and of course, penalties for late payments, etc.

Bottom Line
The idea of a credit card is very straightforward, but there is a ton going on behind scenes. It is important that you use your card wisely and keep low, manageable balances.