Credit: A brief history

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Note and Coin looking at a cave wall with an inscription that reads: “CREDIT” - Note holds a lamp in its hand Note and Coin looking at a cave wall with an inscription that reads: “CREDIT” - Note holds a lamp in its hand

Credit - one of the most powerful tools available to both businesses and individuals; without which the world as we know it now would come to a standstill. It has become such an integral part and parcel of our lives that it is extremely hard to envision a world where there is no credit. 

 

While you might be acquainted with the concept of credit, what you may not know is the richness of credit history and the story behind it. And that’s what we’re going to be looking at in this chapter. Make sure to get your reading glasses ready because we’re going back in time! 

 

The first ever usage 

Considering the fact that credit is now nearly omnipresent, it is natural for someone like you to think of it as a recent invention. As a matter of fact, many individuals seem to think that the concept of credit came about during the industrial revolution. While the industrial revolution did certainly popularize and normalize the use of credit for business purposes, the earliest usage of it can be traced back to over 5,000 years ago! Unbelievable, isn’t it? But, it's true. 

 

According to historians, the Sumerian civilization, which was one of the oldest civilizations in the world, used consumer loans for agricultural purposes as early as around 3500 B.C. This practice was then carried forward to Babylon, a nearby civilization, which was the first to have formally documented it. Around 1800 B.C. the Code of Hammurabi was written, which clearly specified the maximum interest rates that can be charged. 

 

Credit, as a practice, was then carried on over the next few hundreds of years to various other civilizations who also made efforts to document it. Another such instance was from the Roman Republic. Around 50 B.C. a Roman statesman, Cicero, wrote that his neighbor bought vast swathes of land through credit.  

 

The history of credit is a long one, with the term itself first used in the 16th century in the English language. The term is said to have originated from French and Latin, where it means belief or trust. It has been known from early times that many of the working classes would run tabs with shopkeepers or grocers and borrow essential commodities on credit when things were tough. 

 

Through the age of discovery

Economic activity slowed down after the entire Roman empire collapsed, leading to a brief pause in credit and lending activities. Around 800 A.D., the Church, which rose to prominence, outlawed the practice of charging interest on loans. This effectively brought credit to a grinding halt.  

 

By the 1500s, many European explorers set sail to lands far away from home on ships in the hope of discovering new inhabitable places and for trade. This was known as the age of discovery. And as you can imagine, the cost for conducting such risky explorations was quite high. Therefore, the Europeans resorted to using credit once again to fund their trips. Around 1545, the king of England - Henry VIII, set a fixed interest rate of 10%, which was to be followed throughout the country.      

 

Modern credit history

As the usage of credit shot up, Englishmen brought about the concept of credit reporting. Around 1803, a group of English tailors would congregate together and swap information on customers who defaulted on their payments. This was later expanded in 1826 by a newspaper publication - The Manchester Guardian, who started issuing monthly newsletters with information on credit defaulters. This credit reporting practice was also picked up by the U.S.A and used extensively from 1864. 

 

Have you ever purchased an automobile through a vehicle loan? You know it is a form of credit, right? Although this practice is commonplace these days, it was revolutionary in the year 1919, when General Motors in the U.S. allowed customers to purchase cars through installments. The idea of being able to purchase expensive luxury items through small monthly installments caught on like wildfire. Around the 1930s, this method of financing was used to buy home appliances, furniture, and other expensive items. 

 

By the 1950s, credit had become so prevalent in the U.S. that the American middle class was finding it difficult to keep track of their multiple credit accounts with different merchants. To help consumers keep track of their accounts and to allow them to purchase items on credit using just a single source, the Diners Club introduced the charge card, which was the first ever credit card. You probably know what happened next, don’t you? 

 

Credit card history in India 

The credit card history in India can also be traced back a few decades, to 1980. That was when the Central Bank of India launched the first bank-issued credit card. Andhra Bank also issued its first credit card in the same year. And both these cards were Visa cards. As for the first MasterCard credit card in India, its history can be traced back to 1988, when Vijaya Bank issued its first credit card of this kind. Over the course of the next five years, many public sector banks in India started to issue their own credit cards. 

 

Wrapping up

Going through the history of credit was interesting wasn’t it? It is quite evident from this chapter that we’ve come a long way from the earliest forms of credit. We now have several different credit options at our disposal, which we will be looking at in the next chapter. 

 

A quick recap

  • While the industrial revolution did certainly popularize and normalize the use of credit for business purposes, the earliest usage of it can be traced back to over 5,000 years ago!
  • The history of credit is a long one, with the term itself first used in the 16th century in the English language. The term is said to have originated from French and Latin, where it means belief or trust. 
  • European explorers resorted to using credit to fund their voyages.
  • As the usage of credit shot up, Englishmen brought about the concept of credit reporting. Around 1803, a group of English tailors would congregate together and swap information on customers who defaulted on their payments. 

In the 20th century, the Diners Club introduced the charge card, which was the first ever credit card.

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