Consumer credit has been around since the early twentieth century. In 1910 (four years before the establishment of the Federal Reserve system), Sears, Roebuck and Company was lending working people money so that they could buy the goods Sears had to sell. The company's first application asked, "How long at your present address?" and "How many cows do you milk?" Sears, and then other retailers, gave consumers the credit that banks would not give them.
These early credit cards, often called merchant cards or retail cards, were issued by the same companies that sold the goods. In 1949 the Diner's Club card was born, marketed as a way for the executive on the go (and often on a corporate expense account) to keep a record of expenses and make a single payment each month for travel and entertainment.
In 1958 American Express and Carte Blanche joined the fray. The so-called T & E cards were not originally all-purpose cards, but over time their focus changed to all-purpose use. In the mid-1960s the MasterCard and Visa systems were established, and banks issued all-purpose credit cards bearing their logos.
Within a decade, MasterCard and Visa had established a network by which millions of people could make billions of purchases. American Express responded to the bank card challenge, expanding both its customer recruitment and its merchant base. In 1986 Sears entered the all-purpose card market with its Discover card. By the 1990s the all-purpose card gained dominance over traditional store cards, making it possible for millions of cardholders to charge anything from their dental fillings to their parking tickets.
By the end of the 1990s the credit card had become firmly woven into the texture of American consumer life. It is very difficult to rent a car from Avis, reserve a room at a Holiday Inn, or order a pair of hiking boots from L. L. Bean without one. Credit cards provide security; no cardholder fears being caught without enough cash to meet an emergency, even late at night or far from home. Cards offer safety for travelers or shoppers who no longer need to carry large amounts of cash that can be stolen or lost.
Credit cards offer convenience; a cardholder's single payment can handle a number of purchases. Credit cards provide record keeping for tax purposes, receipts for expense account reimbursements, leverage for resolving disputes with merchants, and a way to pay for an unbelievable bargain on a four-karat cubic zirconium on the Home Shopping Network. Credit cards offer consumers a wide array of advantages over other systems of payment.
Credit card debt has become as much a part of American life as has the credit card itself. People who would never have considered going to a finance company to borrow US Dollars 5,000 to buy odds and ends will run up a credit card bill to US Dollars 5,000 in charges of US Dollars 25 and US Dollars 50. Of the three-quarters of all households that have at least one credit card, three out of four of them also carry credit card debt from month to month. This means that the bill payers in half of all households (sweeping the card carriers and the non-card carriers in together) get up from the kitchen table after paying the bills each month, carrying over one or more credit card balances to the next month.
As the 1990s drew to a close, American households carried an estimated US Dollars 500 billion in outstanding credit card debt, more than double the amount of credit card debt due at the beginning of the decade. Government researchers estimate that the fifty million families making regular payments carry an outstanding balance on a bank card that amounts to about US Dollars 1,500 a family, although with the addition of retail credit, other researchers place the number much higher. With average interest rates pegged at 18.72 percent on the outstanding bank card debt, the typical household paid about US Dollars 281 - the cost of a new twenty-five-inch color television set - in interest payments on MasterCard and Visa bills in 1997 alone.
The debtors who carry these credit card burdens generally are neither poor nor rich; they are middle-class, middle-income Americans. The proportion of households reporting consumer debt increases as income rises, peaking in the US Dollars 50,000–US Dollars 100,000 annual income range, then declining as incomes rise further. Credit card debt follows the same pattern, available to about one-quarter of the debtors with incomes below US Dollars 10,000 but owed by nearly three quarters of the debtors with incomes in the US Dollars 50,000–100,000 range. Access to credit is more sharply restricted for the poor, who have low incomes and few assets.
Fewer than half of households with incomes below US Dollars 10,000 had any consumer debt, compared with more than nine-tenths of those with incomes above US Dollars 50,000. These data suggest that consumer debt - the short-term, high-interest debt that is largely credit cards - is concentrated among middle-income families.
For middle-class Americans, credit cards are a way of life. Just as fewer and fewer people recall a time without phones or even without answering machines, fewer Americans remember a time when it was hard to pay with plastic. Increasingly, however, they do not pay - they finance. Quietly, without much fanfare, Americans have taken to buying school shoes and pizza with debt - and paying for those items over months or even years.
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