When Were Credit Cards Invented?

When the Diners Club card launched in 1950 as the first universal credit card, the concept was so new that the company had to teach consumers how it worked. "Your Diners' Club Card is a master credit card at these and one hundred other superb eating places in the metropolitan New York area, Chicago and other key cities," read an early newspaper ad. "Receive one monthly statement reflecting all charges."

Commercial banks got into the credit card business in the 1950s, pioneered by the BankAmericard, the first plastic credit card issued by Bank of America in 1958.

As early as the turn of the 20th century, American retail stores began offering charge accounts to regular customers so they could shop on credit. These early credit accounts—often identified by a metal token or fob with the store’s name and account number—did not charge interest. The expectation was that the customer would pay the full balance of the charge account every month.

Installment plans—in which big-ticket items were paid for over months or even years without interest—were also popular. In 1930, Sears, Roebuck & Company opened up its entire catalog to installment payments, and by 1940 more than 30 percent of Sears catalog sales were on installment.

Before World War II, retailers of all kinds offered interest-free charge cards, including gas stations, railroads and even airlines. In 1934, American Airlines issued the Air Travel Card, a metal charge card that came with a 15 percent discount on airline tickets.

In 1948, a group of department stores in New York City teamed up to offer Charga-Plates—embossed metal plates the size of dog tags—that could be used to buy items on credit at any of the participating stores.

The idea for the Diners Club card was allegedly born when businessman Frank McNamara was out with clients at Major's Cabin Grill in New York City in 1949 and realized he didn’t have his wallet. Embarrassed, McNamara dreamed up a charge card for business executives that could be used at restaurants across the country.

The Diners Club card, first issued on cardboard in 1950, was the first multipurpose charge card that wasn’t tied to a specific retailer or business. It quickly expanded from restaurants and bars to hotels, retail stores and airlines and was accepted abroad by the mid-1950s.

Like store-specific charge cards, Diners Club didn't charge interest. Instead, cardholders paid an annual fee ($5 in the 1950s) and the businesses accepting the card paid Diners Club between 7 and 10 percent of every purchase.

Diners Club was one of the most popular credit cards in the U.S. for decades before losing ground to giants like Visa and Mastercard. Interestingly, in 1985, Diners Club became the first credit card to offer points that could be redeemed for upgraded or free airline flights.

In the 1950s, most American banks were small, local institutions that primarily served business customers, but Bank of America was different. The California-based bank had more than 800 branches across the state by 1958, and it did brisk business in consumer lending, financing mortgages and car loans. Bank of America was also one of the first banks to invest in mainframe computers and extensive telephone networks to manage its accounts and process transactions.

In 1958, more than 2 million Bank of America customers in California received a surprise gift in the mail—a plastic BankAmericard. The BankAmericard was the first "true" credit card in the sense that cardholders were charged interest for unpaid balances carried month to month.

Unfortunately, many consumers didn’t understand that their new “free” credit card charged interest. Bank of America initially suffered significant losses as cardholders defaulted on payments, but the bank didn’t give up on its credit card business. Bank of America wanted to expand its customer base beyond California, but federal regulations at the time restricted banks to doing business within their state.

To get around federal regulations, Bank of America struck deals with banks in other states (and abroad) to license the BankAmericard name starting in 1966. Then, in 1970, Bank of America divested its ownership of the BankAmericard and formed an independent venture called National BankAmericard Inc. No longer encumbered by geographic restrictions, the credit card was available nationally and internationally. In 1976, National BankAmericard, Inc. changed its name to Visa.

Other banks followed the same business model. In 1966, a consortium of New York banks teamed up to compete with Bank of America. The newly created Interbank Card Association (ICA) grew over the next decade to strike deals with more U.S. and foreign banks. In the late 1970s, the ICA rebranded itself as MasterCard International.

Still, credit card purchases made up a very small percentage of total sales in the 1960s and 1970s because they were expensive to process. Before payments were computerized, businesses had to verify every credit card transaction over the phone and then send paper copies of the receipt to the card issuer to collect payment. This took up valuable time, so most businesses charged customers a fee to pay with a credit card. The fee was enough to discourage many people from paying with plastic.

In 1965, fewer than 70 U.S. banks issued credit cards. By 1970, there were 1,200. Following the lead of Bank of America, banks mailed tens of millions of unsolicited credit cards to their customers. Congress banned mass mailings of credit cards in 1970 and passed other regulations to protect consumers.

The Truth-in-Lending Act (1968), the Fair Credit Reporting Act (1970) and the Fair Credit Billing Act (1974) all helped to safeguard the growing consumer credit market. The federal government also issued a temporary ban on consumer surcharges for credit card purchases in 1976, making them more affordable. (Surcharges returned in 2013 after a protracted lawsuit.)

Incredibly, it wasn't until 1974 that women had the same rights as men when it came to credit cards. Before the Equal Credit Opportunity Act (1974), single women often needed a male co-signer (e.g. a father or brother) to apply for a credit card. Married women not only needed their husband’s signature to obtain a card, but the card was issued in his name (“Mrs. John Smith”) and was tied to his credit history.