Credit - and by association the credit card - has become a cornerstone of the American way of life. Each American household is estimated to have among them at least 10 credit cards, not counting charge cards or house cards, and carries an average of $13,000 in credit card debt. This is however not a recent phenomenon.

It was only inevitable that Americans would invent the credit card. Americans have always been comfortable about using credit. The Europeans who started colonizing America in the 1600s came from countries that had put aside old prejudices about borrowing and lending, and the new attitudes toward credit were transplanted on North American soil.

Americans have also always needed credit: borrowing to buy land, to establish a business, to travel west in pursuit of valuable animal furs or in search of precious metals. Others went into debt in order to get to America in the first place — as the colonies’ indentured servants did — or stumbled into debt, and were released by royal decree to join English general James Oglethorpe in establishing the colony of Georgia.

By 1800 the United States was an independent nation, with debt being a way of life for many of its citizens. New York City pawnbrokers gave out loans against 149,000 separate pieces of collateral in 1828 — versus a population of only around 200,000. In rural areas, people bought horses, carriages, plows, seeds, clocks and household furniture on credit. Many promised to pay in full at harvest time; others relied on open-book credit.

Open-book credit was used to purchase inexpensive necessities of life such as food and clothing. A shopkeeper allowed customers to take home the goods they needed, and to pay what they could afford to, paying in part but not all of their balance each month — much like many credit card owners do today. Yet very few fell into drowning debt. Both credit card debt and open-book credit are classified as revolving credit.

Early 19th century merchants also offered a non-revolving type of credit, the installment plan. These plans were limited to well-to-do customers who purchased expensive items like a piano or a carpet. By the turn of the century, installment buying was no longer limited to the rich, and even working class families could purchase “discretionary” goods on installment. It got so that installment buying became associated with the needy. A further refinement on installment plans came early in the 20th century with the introduction of the department store house card or the charge card.

The charge card was first offered, like installment plans had originally been, to buyers of luxury goods. Up market stores provided the house card to their prized customers, which naturally made them very happy. The house card was convenient: they didn’t have to carry large amounts of cash or undergo the identification hassle if they paid by check. The customer merely presented the house card to a clerk for recording of the sale, and received a bill once a month for thirty days’ worth of purchases. The customer settled the bill in full each month. The store charged nothing for the service, but gained customer loyalty. This charge card made it easy for the store to keep track of sales, but, the biggest advantage was that the charge card increased sales per customer.

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