Credit cards emerged in the 1920s as a convenience for wealthy customers, but the modern credit card system took shape in the 1950s

The first credit cards were not plastic. In the 1920s, oil companies and department stores issued metal plates and paper cards to regular customers so they could buy on account without carrying cash. Customers would present the card, the merchant would record the purchase, and the customer would pay the bill monthly. These cards worked only at the issuer's own stores or gas stations — you could not use a Texaco card at Shell, for example.

The first general-purpose credit card that worked across multiple merchants was the Diners Club card, launched in 1950. It was made of cardboard, then plastic, and let cardholders eat at restaurants across New York City without paying cash on the spot. The cardholder would receive a monthly bill. Diners Club charged the restaurant a fee for processing the transaction, a model that still exists today.

Visa and Mastercard followed in the 1960s. Bank of America created the BankAmericard in 1958 (which became Visa in 1976), and a group of California banks launched Mastercard in 1966. These cards worked at thousands of merchants and were issued by banks rather than by the merchants themselves. This separation — the bank issues the card, the merchant accepts it, a payment network connects them — is the structure that credit cards still follow.

Key Takeaways

  • The first credit cards in the 1920s were issued by individual stores and oil companies and worked only at that company's locations.
  • Diners Club, launched in 1950, was the first card that worked at multiple unrelated merchants, though it required payment in full each month.
  • Bank of America's BankAmericard (1958) and Mastercard (1966) created the modern three-party system: issuing bank, merchant, and payment network.
  • The shift from metal and cardboard to plastic happened gradually through the 1950s and 1960s as technology improved.

Store cards and the first multi-merchant systems

Before credit cards became widespread, department stores like Macy's and Sears issued their own cards to customers. These were essentially charge accounts — the store kept a record of what you owed and sent you a bill. The advantage was convenience: you did not have to carry large amounts of cash or write a check at the register. The disadvantage was that the card worked nowhere else.

Gas station cards operated the same way. Texaco, Shell, and Esso each issued their own cards to customers who bought fuel regularly. A customer might carry five or six different cards, one for each store or station they frequented. This system worked for the merchants because it encouraged repeat business and let them extend credit to trusted customers without the risk of a bank.

Diners Club changed this in 1950 by creating a card that worked at many restaurants at once. The cardholder paid Diners Club a membership fee, and the restaurant paid Diners Club a percentage of each transaction. Diners Club then paid the restaurant. This three-way arrangement — cardholder, merchant, and card company — became the template for all modern credit cards. However, Diners Club required cardholders to pay their full balance each month, so it was a charge card, not a credit card in the modern sense.

How Bank of America and Mastercard built the modern credit card

Bank of America introduced the BankAmericard in 1958, and it was the first card issued by a bank rather than a merchant or a separate card company. The bank borrowed money to cardholders at interest, meaning cardholders could carry a balance from month to month and pay interest on what they owed. This was the crucial innovation: the bank made money not just from merchant fees but from interest on the cardholder's debt.

The BankAmericard was initially available only in California, but Bank of America licensed the brand to other banks across the country. By the mid-1960s, hundreds of banks issued BankAmericards. In 1976, the brand was renamed Visa to reflect that it was no longer owned by a single bank.

Mastercard began in 1966 as an effort by a group of California banks to compete with Bank of America's BankAmericard. It followed the same model: a bank-issued card that let cardholders carry a balance and pay interest. Mastercard grew rapidly because multiple banks could issue it, just like Visa, rather than a single bank controlling the brand.

By the 1970s, Visa and Mastercard dominated the market. American Express, which had started as a travel company issuing charge cards in 1958, also became a major player. These three networks — Visa, Mastercard, and American Express — still process most credit card transactions in the United States today.

The shift from paper and metal to plastic

The earliest credit cards were made of materials that seem impractical now. Diners Club's first cards were cardboard. Store cards were often metal plates embossed with the customer's name and account number. Merchants would place the card in a mechanical imprinter, lay a carbon slip underneath, and press down to transfer the card's details onto the sales slip.

Plastic became the standard in the 1950s and 1960s as manufacturing improved and costs fell. Plastic was more durable than cardboard, lighter than metal, and easier to emboss with account numbers. The magnetic stripe, which stores card data magnetically, was added in the 1960s. This let merchants read the card's information electronically instead of manually typing it in, speeding up transactions and reducing errors.

The chip technology that powers modern credit cards came much later. The first chip cards were issued in France in the 1980s. Chips are more find than magnetic stripes because they encrypt the card's data and are harder to counterfeit. The United States was slow to adopt chip technology — most American cards did not have chips until the 2010s — but chip cards are now standard worldwide.

How credit cards work today versus the early systems

The basic structure of a credit card transaction has not changed since the 1960s: a cardholder presents a card, a merchant processes it, a payment network routes the transaction, and the issuing bank pays the merchant. What has changed is the speed and the technology.

In the 1960s and 1970s, a merchant would imprint the card, write down the transaction details, and mail the slip to the bank. The bank would then bill the cardholder. This process took days or weeks. Today, a merchant swipes or inserts a card, the transaction is authorized in seconds, and the funds move electronically within hours.

Early credit cards charged annual fees and interest rates that varied widely by bank. There were no rewards programs. Today, many cards offer cash back, travel points, or other rewards. Annual fees range from zero to several hundred dollars depending on the card's benefits. Interest rates are still set by the issuing bank but are now regulated by federal law, which caps how much a bank can charge in certain situations.

The biggest change is that cardholders no longer need to carry a physical card. Digital wallets like Apple Pay and Google Pay let you store your card information on your phone and pay by tapping your phone at a merchant's terminal. This is the latest evolution of a system that started with metal plates in the 1920s.

Why credit cards took so long to become widespread

Credit cards did not become common until the 1970s and 1980s, even though they were invented in the 1950s. The main barriers were merchant adoption and consumer trust. Merchants had to buy or lease equipment to process cards, and many small businesses could not afford it. Consumers were skeptical of buying on credit and worried about fraud.

The growth of automated teller machines (ATMs) in the 1970s helped credit cards gain acceptance. ATMs made it easier for banks to issue cards and for cardholders to manage their accounts. The rise of shopping malls in the 1980s also accelerated credit card use because malls had many merchants in one place, making cards more useful than cash.

By the 1990s, credit cards had become the dominant form of payment for purchases over a certain amount. The internet and online shopping in the 2000s made credit cards even more essential because online merchants could not accept cash. Today, credit cards are used for roughly one-third of all consumer purchases in the United States.

Frequently Asked Questions

What was the very first credit card ever made?

The first credit cards were issued by department stores and oil companies in the 1920s. They were metal plates or paper cards that let regular customers buy on account. The first general-purpose card that worked at multiple merchants was the Diners Club card in 1950, which was made of cardboard and later plastic.

When did credit cards become plastic?

Plastic became standard in the 1950s and 1960s as manufacturing improved. Early cards were cardboard or metal, but plastic was more durable and easier to emboss with account numbers. The magnetic stripe, which stores card data, was added in the 1960s to speed up transactions.

Why did it take so long for credit cards to become popular?

Merchants needed equipment to process cards, which was expensive in the 1950s and 1960s. Consumers also distrusted buying on credit. Widespread adoption did not happen until the 1970s and 1980s, when ATMs became common and shopping malls made cards more useful than cash.

Is American Express a credit card or a charge card?

American Express started as a charge card in 1958, meaning cardholders had to pay their full balance each month. Today, American Express offers both charge cards and credit cards. Some American Express cards require full payment monthly, while others let you carry a balance and pay interest.

When did credit cards get chips instead of magnetic stripes?

Chip technology was invented in France in the 1980s and became standard in Europe quickly. The United States adopted chips much more slowly. Most American credit cards did not have chips until the 2010s, though chip cards are now standard worldwide because they are more find against fraud.