Research shows that nearly 80% of Americans own at least one credit card. These plastic cards are everywhere and have remained the dominant means of payment for many years. There are many reasons why credit cards have become so popular. For one, you no longer need to carry around lose cash and you can use your card to pay for unexpected emergencies.
Given the convenience your credit card offers, it comes as no surprise that its usage has almost tripled since 2000. While many people don't think twice about where their cards come from, this piece of plastic has a storied history, riddled with interesting facts. Here are 20 things you probably didn’t know about credit cards.
Credit Card Circulation
The average American wallet has at least 3 credit cards at any given time and the current credit transactions amount to $3 trillion a year. This amount is a testament to the number of credit cards in circulation these days.
The three largest credit card companies boast the highest number of cards currently used. As of Q1 of 2019, Visa has 1.124 billion, Mastercard has 767 million and American Express has 104 million. If you place these cards side by side, they have the ability to cover the span of the earth 3.5 times over. In terms of distance, that's around 89,981 miles.
The First Credit Card
When Bank of America came out with its first credit card, one of its employees Joseph P. Williams mailed out unverified credit cards to customers in Fresno, California with a limit of $300. These cards were unverified and over the course of one year, more than 2 million cards had been mailed.
Unfortunately, around 20% of the people that received the card failed to make their payments on the card resulting in a loss of $8.8 million for Bank of America. Williams was fired and today the act of mailing out unsolicited cards is illegal.
Credit Card Expiration
One of the main reasons your credit card has an expiration date is because of the card's wear and tear. While the card itself may be in good condition, the magnetic strip behind the card can wear out due to overuse.
Moreover, if your card is valid for numerous years, the numbers on the card, especially the CVV can fade over time. This can make it impossible to pay for online transactions with your credit card. Having a worn-out card also reflects badly on the credit card company and its user so companies make it a point to issue a new card once every few years.
Anti-trust cases are fairly commonplace but did you know that one of the largest settlements ever reached was over credit card fees. In 2013, a case against Visa and Mastercard over their swipe fees led to a ruling by Judge John Gleason for a settlement that amounted to $5.7 billion. The original amount was at $7.2 billion but was lowered when large retailers like Amazon dropped out of the case.
The second-largest settlement over swipe fees was also over credit card fees. Once again credit card giants, Visa and Mastercard were charged with creating a cartel over retailers. This landmark case was called 'Priceless' and it was settled for $3.7 billion.
The Luhn Algorithm
You can check the validity of your numbers using a simple checksum called the Luhn algorithm. To apply this algorithm to your card, double every second number on the card, starting from the right. This means that if your card number is (1 1 1 1) it will become (1 2 1 2).
Next, you need to add the double-digits to the ones that were not changed. This gives you a double-digit value. If this value is divisible by 10, it means that your card number is valid. The algorithm helps identify any transposition errors that may have been made.
Plastic Was Founded By Sears
Sears was one of the biggest retailers in America at one time and many people eagerly awaited its famed Christmas catalog each year. To ease the buying process for customers, Sears invented the first cashback card in 1911. This card offered rewards on purchases and was in circulation until 2003 when Citi Group acquired the card from Sears along with its membership list.
In 1996, Sears also introduced its Discover Card which was a year before Mastercard and Visa introduced their credit cards. These companies continue to dominate the credit card industry today.
The Creator Of The Diner Club Card Believed It Was Just Hype
Owning a credit card has become the norm in American households today with the average American owning approximately six credit cards. However, the person who created the card did not expect to revolutionize the payment sector.
Frank McNamara invented the Diners Club credit card to make it more convenient to pay for various items, especially when you did not have enough cash on hand. However, he believed the card was just a fad and sold his stake in the Diner's Club for $200,000 ($1.6 million today). The Diner’s club went on to garner a membership of 1.3 million card users and became popular all around the world.
Credit Card Addiction Stemmed From Farming Communities
In the 19th and 20th centuries farming communities relied heavily on the credit provided by the stores in their area because of the seasonal income they received. The stores would extend credit to the farmers who would then pay back the shopkeepers during the harvest season.
As the farming community grew, more people depended on this credit. The shopkeepers would record the amount owed on a ledger but as the credit balance began to grow, they handed out cards made of cardboard as a means of identifying how much was owed.
You Can Refuse To Pay A Credit Card Interest Rate Increase
Many credit card holders are not made aware of this but under the Credit Card Accountability and Disabilities Act (CARD) if the APR rate on your card increases you can refuse to pay. If you have a good relationship with the bank, you can put in a request to continue paying the old interest rate but make sure to get the agreement in writing.
However, in most cases, the credit card company can lower your credit limit and increase the number of monthly payments. In the worst-case scenario, they could cancel your card altogether.
The First Known Credit Card Was Only For New Yorker Banking Customers
In 1946, Joe Briggs, a banker who worked with Flatbush National Bank in New York, invented the first credit card. The 'Charge-It' card. However, this card did not gain too much popularity since it could only be used for purchases in New York by customers from his bank.
In 1950, Frank McNamara invented the Diners Club card which could be used in more than one store. He came up with the idea for this card when he changed clothes and forgot his wallet at home. At first, this card could only be used in 27 restaurants but within one year, it had over 20,000 customers.
The Visa Logo
The classic blue and gold that make up the Visa logo is a representation of the credit card company's history. The blue symbolizes the skies while the gold represents the golden hills in California. The gold is also a reflection of the luxury factor associated with the card.
In recent years, Visa has changed their logo from blue and gold to a simple navy blue color. They wanted the card to resonate with the everyday customer (not just the luxury sector) who can use the card everywhere.
You Can Tell Which Industry Issued Your Card
There are many different industries out there that issue various credit cards. One way to identify the industry that issued your card is with the first digit on the card. Each number from 1 through 9 signifies a separate industry that has issued the card.
Cards that start with 1 or 2 were issued by an airline sector, 3 usually means the card was issued by the travel and entertainment industry, 4 and 5 are for financial institutions, 6 is for banking, 7 for gas companies, 8 is from the telecom industry and 9 is a national card.
Women Couldn't Apply For Credit Cards Until 1974
Before the Equal Credit Opportunity Act was passed in 1974, women in the United States could not apply for credit cards without their husbands as a co-signer.
Prior to this, women who applied for credit cards that were separated from their husband's account would get rejected. However, in 1974, when the act was passed it became illegal to discriminate against race, sex, religion or marital status when it came to extending a line of credit to customers.
State Usury Laws Protect Consumers
In many states, the credit card rates are limited by the maximum usury laws. This makes it hard for credit card companies to charge fees above a certain amount. For example, in California, the maximum interest rate is at 7% while in New York it is at 16%. However, a ruling passed in 1978 stated that these laws did not apply to national banks.
Due to the usury laws that limit the credit card rates charged to customers, many credit card companies are headquartered in states that have lax usury laws. This is why banks like Morgan Stanley, HSBC, and Bank of America are located in Delaware which has no market cap when it comes to interest rates.
Gen X Has The Most Credit Card Debt
Generation X, or people born between the years 1967 and 1981, are said to have the highest amount of average personal credit card debt at $7,750. This is in contrast to the Millennial generation whose credit card debt is only $4,315.
This may have something do to with the booming economic conditions in the 80s which gave people higher purchasing power, forcing them to extend their line of credit. In contrast, the Millennial generation has so far been dominated by the 2008 economic collapse and following recession. However, this credit card debt is not in line with the credit scores which only continues to decrease with each generation.
One-Fifth Of Americans Have More Credit Card Debt Than Savings
It is estimated that one in five Americans have accumulated a credit card balance that is higher than their savings. This reflects a bleak financial future for these Americans as financial experts recommend that you need to have at least six months' worth of expenses in your emergency fund.
In a recent survey, 12% of the respondents said that they had neither credit card debt nor savings. While no debt is great, it is risky to not have any money in your emergency fund. If you were to face an unexpected expense in the future, it could jeopardize your current finances.
Rich People Carry More Debt
Research shows that the higher the income level in a household, the greater the debt level. It is estimated that households with more than $160,000 in annual income will have debt levels of $11,200. On the flip side, people who make less than $25,000 will only be $3,000 in debt.
This makes sense as households with an above-average income will have a higher credit limit, resulting in a higher amount of debt. Alternatively, the debt incurred by households with a lower income is a higher proportion of their earnings. For example, 8% of $160,000 is $12,800 while 15% of $25,000 is $3,750.
AMEX Black Card And It's Minimum Annual Spending Requirement
Before it became a world-renowned credit card company, American Express was a shipping company that transported goods across the US. Many of their customers were banks and other financial institutions. Soon, they began selling traveler's checks and issued their first credit card in 1958.
In 1984, the first premium credit card was introduced by American Express. It was called the Centurion Card, also known as the black card. This incredibly exclusive card came with an annual fee of $2,500 and owners of the card are required to spend a minimum of $250,000 annually.
Why Are There Embossed Numbers On The Card
You may wonder why the numbers on your credit card are often embossed in silver. This comes from the days of the carbon-copier, also known as the knuckle buster. In order for the machine to capture the numbers on the card, they needed to be raised. This tradition was carried forward in the production of modern cards as well.
However, more credit card companies like Visa and Mastercard are printing the numbers on their cards today because not only are they easy to make and more cost-effective but it is also easier for credit card machines to read.
Your Card Can Expire But Your Accounts Can't
The expiration date on your card exists to avoid wear and tear, especially on the magnetic strip behind the card. It also lets the card company know the date by which the new card needs to be issued. In addition to this, the date also protects you from identity theft since the card's expiry date is information that only the cardholder has.
However, although the card expires, your account doesn’t. The credit card company will issue a new card and you can still use your existing account to keep the card active.