A Brief History of Credit Credit has become something that is very much taken advantage of by our modern society. Most people couldn’t imagine not being able to charge something that they want but don’t have the money for at right now. Some people even depend on their credit card for necessities such as grocery shopping between paychecks. The first real public use of “modern” credit was proposed in 1949 and made its debut sometime in 1950 in New York City. This however was not the first time a system of credit was used. According to an article in the Encyclopedia Britannica, “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 for purchases made at company outlets” (Encyclopedia Britannica, 2012).
In fact, there is evidence of the use of credit even further back in history. An article by Mary Bellis mentions that: “… references to credit cards have been made as far back as 1890 in Europe. Early credit cards involved sales directly between the merchant offering the credit and credit card, and that merchant's customer” (Bellis, 2011). While this is quite a while back in history, it may very well not be the first use of credit. It is more than possible that some system of credit has been around in select civilizations for hundreds of years earlier than 1890. In any economic system involving money or even some basic trading and bartering systems, credit is possible.
Frank X. McNamara came up with the idea of the modern credit card in 1949. His intentions were to come up with a system where someone can have just one simple card that could be used at many stored without involving the hassle of carrying large sums of money around. Even better, a person could buy something without having the money to pay for it. Just swipe the card and pay off the credit company will cover the cost for now. The debt will have to be paid back shortly… with a little interest of course.
After coming up with the idea, McNamara proposed it to some friends. After some discussion, he and two good friends got some money together and decided that they were going to put start a business based on his idea. They started a company called The Diners Club in 1950. Despite the fact that they were initially only accepted by fourteen restaurants in New York City, Diners Club Credit Cards are considered the first example of the modern credit card. The first Diners Club cards were distributed in early 1950. Only 200 cards were given out when the company opened up; and most of the card holders were friends and acquaintances of McNamara. The convenience of the cards caused them to quickly gain the interest of New Yorkers and the idea of a credit card soon exploded in popularity. By the end of the year, roughly twenty thousand people had a Diners Club Credit Card. (Rosenberg, 2009) That was the start of our modern credit system. McNamara’s simple idea of a more convenient way to purchase things turned into a something that is used by millions of people around the world and is accepted by millions of stores and restaurants worldwide.
Nowadays just about everyone carries a credit card with them when they go out or at least have one somewhere “just in case” they may need it in an emergency situation. While the economy would probably survive without credit, people would have trouble buying expensive things such as nice cars, houses, or anything over $10,000 really. Without credit, it would be quite difficult to purchase expensive items because you would need all of the money immediately available to you at the time of the purchase of whatever the item may be. It would take someone a very long time to save up $350,000 to buy a nice house, assuming that they would be able to save such a large sum at all. Credit allows someone to make a large purchase such as a nice new car now, and pay off the debt in installments over many years. This makes the purchasing of expensive items doable for average people making an average salary.
With this wonderful little card, people could now buy the things that they’ve always wanted but could never afford. When used correctly, it is great and allows responsible people to buy nice things that they know they will be able to pay off in the future. Unfortunately, a lot of people tend to overuse credit cards and get themselves into too much debt. Sometimes it gets to the point where the person is in so much debt that they can’t get out of it and they stop paying the money that they owe. This is one major problem with credit; it allows people to spend money that they don’t have. This quite often leads to people buying things that they cannot afford and will not be able to pay off.
Overall, I believe that credit has had a positive impact on the economy. As previously stated, credit allows people to make large purchases that they wouldn’t otherwise be able to make and pay for it through many payments over time. Without credit cards, people would not purchase nearly as many expensive items or services and the economy would therefore not be as stimulated by large average Americans. That being said, if credit had never really caught on in the first place, people would figure out systems for purchasing large items and would probably be a lot better at saving their money to buy expensive items so I don’t think it would have made a difference overall. However, if the option of buying on credit was no longer an option to the American people, our economy would have a lot of trouble. There would be a serious struggle to keep the economy going for a quite a while before everyone fully adjusted to not having that option available to them. It could even be possible that the economy might actually crash entirely. Credit is really quite important to our modern economy.
Works Cited
Bellis, M. (2011). Who Invented Credit Cards? Retrieved Febuary 8, 2012, from inventors.about.com: http://inventors.about.com/od/cstartinventions/a/credit_cards.htm
Encyclopedia Britannica. (2012). Credit Card. Retrieved Febuary 8, 2012, from http://www.britannica.com: http://www.britannica.com/EBchecked/topic/142321/credit-card
Rosenberg, J. (2009). The First Credit Card. Retrieved Febuary 8 , 2012, from http://history1900s.about.com: http://history1900s.about.com/od/1950s/a/firstcreditcard.htm