Credit Facts

Credit was first used in Assyria, Babylon and Egypt 3000 years ago. The bill of exchange, the forerunner of banknotes, was established in the 14th century. Debts were settled by one-third cash and two-thirds bill of exchange. Paper money followed only in the 17th century.
The first advertisement for credit was placed in 1730 by Christopher Thornton, who offered furniture that could be paid off weekly.

From the 18th century until the early part of the 20th, tallymen sold clothes in return for small weekly payments. They were called "tallymen" because they kept a record or tally of what people had bought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. In the 1920s, a shopper's plate, a buy now pay later system was introduced in the USA. It could only be used in the shops which issued it.

In 1950, Diners Club and American Express launched their charge cards in the USA, the first "plastic money". In 1951, Diners Club issued the first credit card to 200 customers who could use it at 27 restaurants in New York. But it was only until the establishment of standards for the magnetic strip in 1970 that the credit card became part of the information age.

The first use of magnetic stripes on cards was in the early 1960’s, when the London Transit Authority installed a magnetic stripe system. San Francisco Bay Area Rapid Transit installed a paper based ticket the same size as the credit cards in the late 1960's.
The word credit comes from Latin, meaning "trust".

A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remove money from the user's account after every transaction. In the case of credit cards, the issuer lends money to the consumer. It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged.

A user is issued credit after an account has been approved by the credit provider (often a general bank but sometimes a captive bank created to issue a particular brand of credit card, such as Wells Fargo or American Express Centurion Bank), with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit.
When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates their consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a pin. Also, many merchants now accept verbal authorizations via telephone and electronic authorization using the Internet, known as a customer not present. (CNP) transaction.

An Electronic Verification system allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment system or Point of Sale (POS) system with a communications link to the merchant's acquiring bank. Data from the card is obtained using from a magnetic stripe or chip on the card; the later system is commonly known as Chip and PIN but is more technically an EMV card.
Other variations of verification systems are used by ecommerce merchants to determine if the user's account is valid and able to accept the charge. These will typically involve the cardholder providing additional information, such as the security code printed on the back of the card, or the address of the cardholder.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect. Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt). Some financial institutions can arrange for automatic payments to be deducted from the user's accounts.

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid.

Students In Debt – A 21st Century Epidemic

"If you go to a vocational school or if you have a job, the credit card companies don't want you. Maybe it's because they think you know the value of a dollar. It's the college students who get the cards. So we're setting up a two-tiered system here and I believe they're exploiting the college students. An easy market." -Janne O'Donnell

Janne O’Donnell began speaking against credit card company policies in 1998 when her son Sean committed suicide. Sean was a recent college graduate with over $12,000 in debt to credit card companies at the time of his death. O’Donnell has lobbied the Oklahoma Senate to ban credit card solicitations on college campuses. She has appeared on numerous television shows including 60 Minutes and Good Morning America to make people aware of the dangers of unlimited credit. She tells her story in James Scurlock's forthcoming documentary about the lending industry, Maxed Out.

Maxed Out takes viewers on a journey deep inside the American style of debt, where things seem fine as long as the minimum monthly payment arrives on time. With coverage that spans from small American towns all the way to the White House, the film shows how the modern financial industry really works, explains the true definition of "preferred customer" and tells us why the poor are getting poorer while the rich keep getting richer.

This is just one of a countless number of similar stories about how credit card debt is destroying young lives before they even get started. Not to mention the toll it is taking on their families. Credit card debt among college students is becoming an epidemic in society today, with students being bombarded with offers in the mail and even on their campuses.

Legislation has finally been proposed to limit the credit card companies advertising toward college students. A proposition entitled "AB (Assembly Bill) 262, The College Student Credit Protection Act" was proposed by Joe Coto of the 23rd Assembly District in California. The bill would prohibit credit card companies from offering gift incentives to students who would complete their credit card applications on the campus.

But to me, that seems to be like putting a band aid on a broken leg. The real solution will come in the form of education. Debt management courses taught in schools as a requirement for graduation. Our children are supposed to be our future and they are entering the world under an increasing burden of debt.

According to student lender Nellie Mae, in 2004, more than 75 percent of college students nationwide had credit cards, and more than 40 percent of students had at least four credit cards. Student credit card debt increases significantly over college years. On average, senior college students owe nearly double that owed by freshman students in credit card debt. The credit card applications that students fill out are for the higher interest cards.

The film Maxed Out reveals that the financial industry's best customers are the broke and the bankrupt. The most profitable niche of the industry is called "alternative" or "sub prime". The bulk of their profits come from late fees and other fees for consumers with unexpected financial hardship. They target those with less than perfect credit. People like Mark Mumma, who experienced frustration with the sub-prime credit card issuer Providian, who paid over $400 million to settle charges that it defrauded its customers between 2000 and 2002.

The modern debt-style, with all of its absurdities and contradictions are exposed. Nowhere are these more evident than in a journey with award-winning investigative journalist Mike Hudson, who travels to Mississippi, Pittsburgh, and New York City interviewing the victims of predatory lending scams.

The most shocking discovery?

The predators aren't boiler room operations. They are the nation's largest and most respected financial institutions! And they're not just preying on adults anymore. In 2001, FirstUSA hired two teenage high school students as walking billboards to make their cards seem "cool" to their fellow students, and paying them commission on every completed application that they collected. FirstUSA also formed partnerships with colleges, paying them millions of dollars for access to their students personal information, setting these kids up for ruin.

In conclusion, Americans are buying with plastic at a staggering rate. From lattes to vacation packages, car payments to home-equity loans, our reliance on credit is increasing. Even the Internal Revenue Service endorses credit cards as a "convenient" way to pay your taxes. Debt is the one issue that affects all of us rich or poor, black or white, gay or straight, liberal or conservative.

It would be ideal if credit card companies agreed to take a more conservative lending approach to students to prevent them from getting too deeply into credit card debt while in school. It might even help to legislate limits for credit cards issued to students. But, more practically, students need to learn how to manage financially. In reality, credit cards and other borrowing options will continue to be available to them while they are in school, and after they graduate.

Credit card use and borrowing money have become common practices in American society and aren't going to cease.

The wisest course is to teach students to limit credit card usage and to borrow wisely.