Brief History of Consumer Credit

Consumer credit is ever-present in the twenty-first century. It is obtainable in a variety of forms, including credit cards, financial advances and loans for designated purchases, such as automobiles and pricey retail items. As early as Columbus' voyage can credit-based transactions be traced, but modern society's consumer credit did not appear until the nineteenth century.

Function

By definition, credit is the stipulation of payment that occurs when a borrower receives finances from a lender by means of promising to pay them back at a later point in time. One of the earliest examples of credit usage is the financing made available to Christopher Columbus for his fifteenth century voyages. After receiving funds from the Queen of Spain, Columbus would pay her majesty back by sharing with her a percentage of his newfound riches.

Effects

Historically, credit was used primarily for goods that would put a consumer into what was called a "productive debt." Lendol Calder, author of "Financing the American Dream: A Cultural History of Consumer Credit," quoted the 1890 census superintendent as saying, "the prime motive in the private debt has been better fences, better barns, better homes and more land for the farmer."

In modern times, the purpose of credit is to allow consumers to make larger purposes for which they might not have the money. Such purchases are often deemed luxury items. Although not all goods consumers purchase on credit are deemed luxurious, some items are not deemed essential.

Significance

During the nineteenth century, the industrial revolution allowed for mass production of goods. Some goods were overpriced for the average consumer, though. At that time, the Singer Sewing Machine Company, began offering installment plan deals in order to boost sales because, at the time, the sewing machine was considered a "big ticket" item, according to the Federal Reserve Bank of Boston (FRBB). The Singer Sewing Machine Company had, for all intents and purposes, begun offering consumer credit.

Popularity

In the twenty-first century, the most closely associated consumer credit channel is the credit card. The first card was introduced by Diners Club in 1949. The card was simple in operation. It was primarily used in the hotel and restaurant industry. Diners Club would offer the card to persons deemed "credit worthy," as noted by the FRBB. Those consumers would then be able to use the card at various participating establishments. The hotels or restaurants would then bill Diners Club, who would bill the associated card user. At the time, Diners Club cards were considered prestigious.

Potential

The explosion of technology and innovation has fueled the growth of credit cards and consumer lending. During the 1970s, only 16 percent of Americans had a credit card, according to the FRBB. As of the twenty-first century, however, 70 percent of households have a major credit card. In modern times, most cards are accepted as a viable substitute for cash at most places where purchases are made.