The history of the credit card goes back as far as the 1920s, when the first form of them were used by merchants in the United States. By 1938 some merchants and stores began to accept other companies’ cards as a form of payment and the rest, they say, is history. The actual mention of a credit card goes back to a novel called ‘Looking Backward’, by Edward Bellamy—1887—where he referred to the term eleven times.

With the founding of the Diners Club card in the 1950s, the concept moved even further into multi-merchant acceptance. The merging of ‘Dine and Sign’ created the idea that people could eat or shop anywhere and pay with the same card and this became the blueprint for the general purpose credit card.

It wasn’t until 1958, when a third party bank became involved to finance the cards, using revolving credit. The Bank of America issued the first recognizable credit card with overseas affiliations.

Now, of course there are many credit cards offered by hundreds of different banks and financial institutions. Some countries are still far more cash orientated, but travellers around the globe still prefer to use a credit or charge card—and now debit cards—to purchase items. This is mainly due to the safety of carrying a card, which, if stolen can be cancelled and replaced—where money cannot.

How They Work

Credit cards are usually issued by a bank, credit union or other financial institution to the issued user, once the account has been approved. Users will see signs in store windows telling them which cards are accepted in their place of business. When a payment is made by the user, they agree to pay the issuer on demand by signing their name on the receipt—nowadays a pin number too. The verification is made electronically via a modem connection to the company. Once verified, the card is accepted as payment and the issued owner becomes liable for payment. A monthly statement is sent out and the card holder must either pay the entire balance or the minimum requested payment.

Interest Costs

If balances are paid in full each month no interest is payable on the amount. If, however, the minimum payment is paid, then interest is added to the balance on a compound rate. Interest rates vary between credit card companies and can be anything from 0% upwards. Many companies have introductory rates from either six or twelve months. Some interest rates are as high as 30%, so anyone taking out a credit card account should always be aware of the ultimate costs of paying the minimum balance each month.

Flexibility

Credit cards are extremely flexible and can be used at most outlets throughout the entire world. Visa and Mastercard are the most recognized names in the credit world, regardless of which company issues the card. Visa has also become synonymous with debit cards recently too. Using the card is very flexible because if one finds themselves short of cash, they can pay with the card anywhere. Also, the safety of carrying a card instead of too much cash is very helpful when it comes to travelling. If the card is lost or stolen it can be immediately cancelled without repercussions, whereas once one loses money, it is gone forever.