What did people do before credit cards?

Credit cards did not arise out of a vacuum; there were plenty of predecessors of credit cards and attempts to introduce credit cards.

Before the 1920s there were strong prejudices about getting credit, particularly for consumer goods.  Although the use of credit was widely accepted for business purposes, it was regarded with some scorn for consumer purchases.  This was a logical reaction to a time of low inflation and static wages.  Borrowing to buy depreciating assets was seen as being problematic.

The first respectable use of credit for consumer purposes was to buy houses.  With the growth of towns many people found that they could not own their own home without a mortgage, and if they bought in an expanding town then house prices tended to rise as land quickly became scarce.  In these cases it was not at all illogical to borrow money for non-business purposes.

In the 1920s, a period of rapid growth often called the “roaring twenties” hire purchase became more popular.  This was where a person would rent a large item, often an automobile, and at the end of the rental period would own the automobile.  Although there were many elements of consumer borrowing in this, particularly the fact that there was interest charged and it was possible to own a good before paying for it, many people did not see this as real borrowing.  Nonetheless it was a major factor in both the economic expansion of the 1920s and the growth of industries such as radio and automobiles.

The next innovation came with store credit.  Many shops worked out that they got more purchases by offering credit.  This was quite a common technique throughout the nineteenth century, but it was often seen as a last resort and not buying on credit became respectable.  However, particularly in California, it became respectable for middle class Americans to have revolving lines of credit with a number of stores as well as buying large goods on credit.

There was seen to be a need to be able to get all the credit balances on one source.  There were a number of attempts to launch credit cards by a number of American banks, but the first bank to do this successfully was the Bank of America who launched the first card in Pasadena where they had a large market share, through a mass mailing of pre approved cards.  This card later became VISA.  It was soon joined by the Interbank Card, which brought together a number of Californian banks to compete with VISA, and this became MasterCharge and later MasterCard.