Retail Cards Pioneer The Use of Credit Cards
Prior to credit cards, merchants kept paper records of the accounts of customers at the store level, on a ledger. This wasn’t the ideal way to track these purchases, as the record keeping was pretty time consuming. Accounts had to be maintained at each individual place of business, as this was well prior to the coming of the computer and the ability to transfer data between them, as we now have.
These were charge accounts that were offered by the merchants, where customers would get billed for their purchases on a periodic basis, usually monthly, similar to how business invoicing works today, net 30 days in other words.
This was offering credit though, as any arrangement which allows something other than full payment upon delivery is, although they weren’t generally revolving accounts as we know credit cards to be today, where one may pay back the borrowed money over a longer period, even a period of several years.
Eventually, the idea of using cards to speed up the processing of orders was considered, and the first credit cards, called Charge-a-Plate, became popular in the 1930’s and 1940’s. The merchants would use these to imprint the cards on invoices, which contained the information on the cardholder along with a piece of paper attached to the back with the customer’s signature for verification purposes.
Retail Cards Hit The Big Time
Actual charge cards as we know them today actually got off the ground in 1921 with Western Union issuing them to their customers, but it wasn’t until American Airlines rolled out their Air Travel Card in 1934 that charge cards really started to gain wide use. By the 1940’s, all the major airlines had travel cards, which offered the appeal of buy now pay later, and also offered discounts over cash, to help promote the cards.
Gas companies jumped on the bandwagon in a big way in the 1940’s, when the gas card was born, and these cards could be used at service stations across the country, offering people a convenient way to purchase their gas and only make one monthly payment by mail.
As the charge card market grew, some issuers started accepting another company’s cards, and for instance you could use a certain gas card at a certain merchant, as other merchants wanted to get in on the action too, the increased spending that credit cards drive, without having to come up with and manage a card program of their own.
The Diners Club Card, introduced in 1950, was the forerunner of the general purpose credit card, and started out as a card that was accepted at many restaurants in New York City, and expanded out from there. It spread throughout the United States, and in 1953, it became accepted in other countries as well.
Diners Club was never a major credit card though, and was really a niche card, as all retail cards are. More and more merchants introduced their own cards as the years went by, with many coming up with actual revolving credit that did not have to be paid back, what we think of a credit card today.
Merchant cards tend to have lower credit requirements, and the risk involved is set off to a certain extent by the value to the merchant in increasing sales, so they can be a little more tolerant than a major credit card can be, where the issuing financial institution has less of a stake in their use.
Retail cards also offer the opportunity for special offers to their cardholders, for instance with loyalty programs that can be tracked by credit card usage, as well as deals where one may be able to repay purchases over a certain amount of time interest free.
The retail card market may be dwarfed by the major credit card market these days, but these retail cards still have their place in the market and still have a pretty significant market share overall, especially at the stores and merchants who offer them, which is the only thing these merchants care about.
Secured Credit Cards
While credit cards were once distributed indiscriminately, through things like mass mailings with little or no regard to one’s credit worthiness, these days one must have at least an acceptable credit rating to qualify for a credit card.
While the interest rates of credit cards are typically quite a bit higher than other lending products offered by banks, and therefore the threshold is lower with cards than things such as bank loans or bank issued lines of credit, the threshold isn’t that much lower, and one must at least have decent credit, a decent credit score that is, and a reasonable level of income, to qualify for a credit card.
People with no credit history or one that credit card companies find unacceptable can still get a credit card though. If one is in this situation, it may be very difficult to ever get a regular credit card, and while sometimes credit card issuers will take a chance on someone who doesn’t have any credit, they will often say no, and a secured card allows someone to not only get a credit card but to establish a positive credit history, to enter the game or get back in the game so to speak.
If one has derogatory items on their credit bureau, a secured credit card is always a good idea, to create a positive history to offset the negative history one has. Once the negative items eventually drop off, this allows the cardholder to hit the ground running, whereby without the good history they would be left with no credit history at all, needing to completely re-establish their credit rating, and therefore doing this while your score is the pits is preferable.
The way secured credit cards work is that the applicant is required to secure the credit granted on the card with a cash deposit, which will represent part or all of the credit granted, and is kept in reserve by the credit card issuer to be used in case of default.
Other than that, a secured credit card functions exactly like a normal credit card would, reported to the credit bureaus the same way for instance, as well as incurring interest charges on unpaid balances. The fees for these cards do tend to be higher though, but that is the price that you pay, and it’s not that there are good alternatives or you wouldn’t be applying for this one.
A lot of people who can benefit from a secured card do not bother with it, and this is unfortunate, and part of the reason is that these cards aren’t marketed with the same zeal as normal credit cards are, due mostly to a more limited market for them. Anyone with poor credit and no credit products ought to get a secured card though, if they are interested at all in either the convenience of having a credit card, or are interested in re-establishing their credit down the road, as secured credit cards provide the benefits of both.
Prepaid Credit Cards
It does not make sense to ever call prepaid cards credit cards, as there is absolutely no credit involved with them, and they are actually pure debit cards.
They are called Prepaid Visas or Prepaid MasterCards, and given that people associate Visa and MasterCard with credit cards, they end up being called prepaid credit cards by a lot of people.
Some people even call their Visa and MasterCard branded bank debit cards credit/debit, even though these are pure debit cards as well, and in some cases people feel that these cards carry more prestige than normal debit cards, especially those who may have poor credit and consider a card with one of these credit card logos on it an entitlement of sorts.
Prepaid cards involve either purchasing them with a preset amount on them, or being able to re-load them as needed. Pre-paid cards do come with fees though, initial fees plus re-loading fees if the card is re-loadable, and due to their higher cost of usage, they really don’t make sense to use for face to face transactions, where one may instead use cash or a debit card.
They do serve a useful purpose for some people as far as using them online, and some who have actual credit cards will use pre-paid ones instead for security reasons, although one can just use a service like PayPal if one is concerned about giving their credit card information out over the internet.
Credit cards are here to stay, in whatever form, and are gaining more and more market share of the payments market with each passing year.