Credit Cards

The History of Credit Cards

Credit cards have become an established and inescapable part of our society. They are one of the primary forms of completing a purchase transaction in most retail businesses. Even tradesmen such as appliance repairmen or plumbers accept them. How did this all come about? Let's examine the history of the ubiquitous credit card.

The  Encyclopedia Britannica tells us that, "the use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers." But let's see if we can pin it down a little closer.

It is widely believed that the creator of the original credit card issued by a bank was John Biggins in 1946. Biggins worked in Brooklyn, New York at the Flatbush National Bank. He called his creation the "Charge-It" program.

Here's how it worked: Transactions were made between Flatbush National's bank customers and merchants that conducted business locally. These business owners would deposit the sales slips at Flatbush National and in turn the bank would proceed to bill the customer. A brilliant move, the Charge-It program was a convenience for the bank customers and a boon for the local merchants, who reeled in the extra business.

Another theory credits Diner's Club as being the first credit card back in 1950. The credit card issued by Diners Club was conceived by Frank McNamara, Diners' Club creator. It was only used to pay restaurant bills. The intent was to give the dining member a feeling of security because he or she did not have to carry a great deal of cash when going out to eat in the evening.

A minor technicality of this theory is that the Diner's Club Card is really a “charge card “ rather than a credit card because the user could not carry a balance over from month to month.

Types of Interest Charged on Credit Cards

First there's the Previous Balance Model, with this model your finance charge is dependent upon your balance the previous month. The payments along with the purchases made this month do not affect the finance charges.

This model can be expensive. Most card issuers employ the Average Daily Balance Model, which includes newly billed transactions when determining the finance charges. They calculate your balance each day, averaging that amount across the entire month. Recent purchases raise the finance charges. If you your balance carries over a from the previous month, no grace period on anything on the new month. They will charge you interest starting the very first day an item is charged.

Other credit card issuers employ an Average Daily Balance Model but without figuring in your recently billed transaction. This costs you less during months that contained new transactions. And the Adjusted Balance Model considers payments that you have made while not considering new transactions. Often you will end up paying the lowest finance charges using this model.

Beware of the the "Two Cycle" Average Daily Balance Model because it uses the all of your average daily balances as long as two bill cycles which costs more than any other of the average daily balance models. In addition to these legitimate interest calculation models, sometimes the rules are skewed by unscrupulous characters, luring consumers into a scam.

Keep a Good Credit Rating

Keeping a good credit rating is key to getting good rates on major purchases. The thing that will hurt you the most is not paying your credit card bills on time. If you let a payment lapse for a period over sixty days, it raises a major red flag. If it slips, it will take a long time to raise your credit rating.

Most people own far too many credit cards. The result is having a difficult time managing your financial life. A total of three credit cards is really all you need. The best thing to do is to hold low interest cards, carry a small balance on them and pay your bills on time. The important thing to do is to show responsible credit card activity. This will look favorable when you go to finance your next vehicle or major appliance. A good alternative to one of your credit cards is a debit card. It will keep you from having to carry around that check book and you can use it for credit if you have to.

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