In the 1950’s, American Express and Diners Club introduced the “charge” cards so that individuals could make purchases throughout the month without carrying large amounts of cash around. Only a few people had these cards and only a few restaurants and retailers accepted them for purchases. Cardholders did not use the cards to pay for items over time; they used the cards for the simplicity of making one payment for all their purchases at the end of the month. The first revolving credit card or the first cards that allowed consumers to carry a balance and pay for purchases over time was introduced by a group of banks in 1966 and called Mastercharge. The name was later changed to MasterCard. MasterCard and Visa are the two most commonly used cards today.

How Credit Cards Work

Most banks have their own MasterCard or Visa credit cards. American Express is not linked to a bank and now has revolving credit, as well as its traditional charge cards. The process is fairly simple. Customers fill out an application for credit. If the application is approved, the bank or credit card company sends the customer a plastic card with the customer’s name and credit card number embossed on the front and a magnetic and signature strip on the bank. Most companies have added security features to their cards such as holograms to prevent forgeries. Along with the card, the company will send the consumer information about his/her “credit limit” (the maximum total charge amount), interest rates and fees associated with the use of the card. It is important that the cardholder read all information carefully. After signing the back of the card, the cardholder may present the card to any merchant accepting that particular credit card as a form of payment. For security purposes, most retail establishments allow customers to “swipe” their own card through a “card reader”, but some stores will take the card and swipe or make an imprint of the credit card. Transactions are approved and completed fairly quickly. Each transaction will show up on the cardholder’s statement each month and the cardholder decides whether to pay the total amount he/she has charged that month or pay only a portion of the total and carry the balance forward, if that is an option for that card. The monthly statement will also contain information about available credit, minimum payment required, due date and any fees or interest that were charged to the account by the company for that billing period.

Who Uses Them and Why

According to a 2004 survey, 79% of all Americans have a credit card and the average cardholder has three or more. So, most people use them. Many small businesses and large corporations use credit cards for monthly purchases. People still use them to avoid carrying cash for reasons of safety. People like the budgeting convenience of being able to see their spending habits on a monthly statement. Cards help individuals and businesses keep track of tax deductible expenses. Some people use them to make large purchases that they will pay for over time. Most companies require a credit card to rent a car or to make hotel reservations. Some people carry them “just for emergencies” and others for a secondary form of identification. The reason an individual chooses to use a credit card varies as much as individuals do themselves.