When Did Buying on Credit Start? A History

The concept of credit, allowing individuals to acquire goods or services with a promise of future payment, has been a fundamental element of economic activity for millennia. While modern financial systems have introduced complex instruments and regulations, the underlying principle of deferred payment is deeply rooted in human history. The evolution of credit reflects changing societal structures, technological advancements, and economic needs, transforming from informal agreements to the sophisticated systems that underpin today’s global commerce. This journey reveals how the trust-based exchanges of ancient civilizations paved the way for the structured credit mechanisms we recognize today.

Ancient and Early Forms of Debt

The earliest known instances of credit and debt are evidenced in ancient Mesopotamia, dating back to around 3000 BCE. Sumerians used clay tablets to record transactions, including loans of grain and livestock. These records show formalized interest rates, with legal limits often set at 20% for silver and 30% for barley under codes like the Code of Hammurabi. Debt cancellation sometimes occurred to prevent individuals from becoming chattel of their creditors.

In ancient Egypt, the economy operated largely on a barter system, but loans were prevalent, involving standardized values. While debt enslavement was not permitted, debtors were encouraged to work off their obligations. Loans could carry high interest rates, sometimes reaching 100% or more, reflecting fluctuating commodity values.

The Roman Empire also saw widespread personal loans, with debt bondage, known as nexum, where a free man pledged himself for a loan. Although nexum was abolished in 326 BCE, temporary forced labor for debt repayment continued. Pawnbroking was a recognized practice, with professional pawnbrokers charging annual interest rates from 45% to 75%. Emperor Augustus even established a state-run system offering interest-free loans secured by valuables, demonstrating early governmental involvement.

Medieval Europe witnessed the emergence of more structured lending, influenced by earlier practices from China, where pawnbroking existed for millennia. Private pawnbrokers, including Jewish and Lombard merchants, were prominent lenders despite opposition from the Catholic Church, which viewed interest (usury) as sinful. The Church’s stance led to the establishment of charitable funds called montes pietatis in the 15th century, offering loans to the poor. Usury laws, which prohibited or regulated interest, were common across many ancient societies and religious traditions.

Evolution of Consumer Credit

The transition from ancient debt practices to modern consumer credit accelerated in the 19th and early 20th centuries, driven by industrialization and urbanization. As factories mass-produced goods, items like sewing machines, furniture, and automobiles were significant purchases for many households. Installment plans emerged as a solution, allowing consumers to acquire these products through payments over time, often with interest. This system, popular from the mid-1850s, made expensive durable goods accessible to a broader population.

The rise of department stores shaped consumer credit. These retailers began offering their own charge accounts, allowing customers to open credit lines for in-store purchases. Early forms included metal charge plates or “courtesy cards” in the 1920s, simplifying transaction recording and accepted only by the issuing merchant. These accounts often functioned like modern charge cards, requiring full monthly payment.

A key development in consumer credit was the establishment of the General Motors Acceptance Corporation (GMAC) in 1919. This entity pioneered financing for automobile purchases, allowing consumers to buy cars with a down payment and monthly installments. This model became widely adopted for other big-ticket items. The increased availability of consumer credit also led to the growth of early credit reporting agencies, which collected information for retailers to assess creditworthiness.

Initially, most consumer credit was extended directly by retailers, based on personal familiarity. However, after World War I and during the Great Depression, banks began to enter the consumer lending market, shifting the primary source of credit from retailers. This expansion of credit availability, alongside a growing middle class, fueled a culture of consumerism where buying on credit became common and socially acceptable.

The Emergence of Credit Cards

The modern credit card era began with the introduction of the Diners Club card in 1950, the first general-purpose charge card. This cardboard card was initially designed for use in restaurants, allowing members to consolidate dining bills into one monthly payment. Unlike earlier store-specific charge accounts, Diners Club aimed for universal acceptance across multiple merchants, requiring full monthly payment.

In 1958, Bank of America launched BankAmericard, the first bank-issued credit card with a revolving line of credit. This allowed cardholders to carry a balance from month to month, with interest charges. Bank of America initiated a mass mailing of unsolicited cards, known as the “Fresno Drop,” to residents in Fresno, California.

To expand, Bank of America began licensing the BankAmericard program to other banks outside California in 1966. This network eventually led to the card’s rebranding as Visa in 1976. At the same time, a group of banks formed the Interbank Card Association (ICA) in 1966 to compete, introducing the Master Charge card.

The ICA, unlike BankAmericard, was governed by a consensus among its member banks, not dominated by a single institution. This association later rebranded as Mastercard in 1979. These developments standardized credit transactions, making them more convenient and laying the groundwork for electronic payment systems.