Random Facts About … the History, Use, and Misuse of Credit Cards

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By David L. Martin

When we opened our internet tubes this week, a bunch of credit card bills came out. What a mess. How did people live, and shop, before credit cards? Brace yourself, young people, for the answer: People saved their money until they had enough to buy what they wanted or needed. If you didn’t have the cash, or the money in your checking account, you typically couldn’t buy household goods, groceries, or gas. Big-ticket items like cars, houses, and farm equipment could be bought on credit. Everything else, you bought it when you had the money to pay for it. You might not have a lot of stuff but neither were you swamped with debt.

In the booming 1920s, individual stores offered charge accounts, but it wasn’t until 1950 when the cardboard Diners Club card was issued that something resembling the modern credit card became available. A Diners Club member could show the card to a restaurant, sign the bill, and then pay all dining bills at the end of the month. Unlike other charge accounts at the time, the Diners Club could be used at different merchants — at first, restaurants but then hotels too. You had to pay your bill in full each month, but typically you weren’t charged a fee or interest if your payment was late. Diners Club made its money from the 7% fee it charged its merchant members.

By 1959, issuers of credit cards (Bank of America and American Express being among the first) allowed cardholders to carry a balance forward from month to month in return for paying interest. Around this same time, BankAmericard began sending out millions of credit cards, unsolicited. The credit card revolution was underway.

A big part of that revolution was, and remains, debt. Unlike early credit cards that made money by charging merchant members, today’s credit cards make most of their revenue from interest charged to cardholders. Credit cards that concentrate on serving people with bad credit make most of their money from fees — late fees, annual fees, cash advance fees, and so on.

According to CNBC, the average American credit card debt is $6,194. Alaska has the highest average, at $8,026, and Iowa’s average is the lowest, $4,774. Virginia comes in as fifth highest at $6,969. Gen X, ages 40 to 55, owe an average of $8,215 in credit card debt, more than any other age group.

People who pay off their credit cards each month and have a card that doesn’t charge an annual fee can use the convenience of a credit card for free. Of course, that would require purchasing only those things you can afford and can pay for with money in your bank account — and that idea went out with your grandparents.

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