What did consumer do for credit before credit cards?

There is a myth about credit cards, and that is that before credit cards almost everyone saved before buying any item, and the very idea of most people borrowing to fund their living costs was unknown.  This myth is simply not true; credit cards grew up in an environment where credit was becoming more common.

There is some truth in the myth that people tended to borrow less, particularly when spending on consumption.  In a time of stable money and low wage growth there was no logical reason to buy to consume.  

Borrowing to buy or build a house had always been accepted, as owning a house was seen as a vital part of self improvement.  In almost all states there was at some time a requirement to own property before a man could vote.  Many building societies were formed in order to allow people to save and borrow in order to build their own house.

Consumer credit became more popular at the beginning of the twentieth century.  This was through “hire purchase”, where a consumer could buy a large item – such as a car – in installments and at the end of this would own the product outright.  While they were paying the installments they could use the good, and they were also responsible for paying for repairs and damage to the item.

There was a premium on paying for a product this way, and this meant that many state governments started regulating this as credit.  It was many people’s first taste of credit.

Store credit also became more popular.  Many shops had always offered credit to good customers, as this was a way of attracting some of the highest spending clients.  This was done on a small scale, and even when there were chains of shops it was highly unlikely that a good customer at one could transfer their credit account to another shop.  However in the UK and America cards had become a popular way of keeping track of customer’s credit accounts and enabled a customer to be billed in various branches.  These evolved into the store card.

The first credit cards arose in California when the Bank of America launched a card that would become the VISA card, mass mailing the card to their customer base in much the same way that Bankcard – Australia’s first credit card – was launched.  A rival consortium of Californian banks also started offering what would grow into MasterCard.