Credit was first used in Assyria, Babylon and Egypt 3000 years ago. The bill of exchange - the forerunner of banknotes - was established in the 14th century. Debts were settled by one-third cash and two-thirds bill of exchange. Paper money followed only in the 17th century.

The first advertisement for credit was placed in 1730 by Christopher Thornton, who offered furniture that could be paid off weekly.

From the 18th century until the early part of the 20th, tallymen sold clothes in return for small weekly payments. They were called "tallymen" because they kept a record or tally of what people had bought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. In the 1920s, a shopper's plate - a "buy now, pay later" system - was introduced in the USA. It could only be used in the shops which issued it.

In 1950, Diners Club and American Express launched their charge cards in the USA, the first "plastic money". In 1951, Diners Club issued the first credit card to 200 customers who could use it at 27 restaurants in New York. But it was only until the establishment of standards for the magnetic strip in 1970 that the credit card became part of the information age.

After the Diners’ Club issued the first credit card (invented by Diners' Club founder Frank McNamara) in the United States (restaurant bills only) and American Express followed in 1958, then the Bank of America issued the BankAmericard (now Visa), the first bank credit card later in 1958. They were first promoted to traveling salesmen (more common in that era) for use on the road. By the early 1960s, more companies offered credit cards, advertising them as a time-saving device rather than a form of credit. American Express and MasterCard became huge successes overnight, and by the mid-'70s, Congress had to start to regulate the credit card industry by banning such practices as the mass mailing of active cards to those who had not requested them.

Later came the bank credit-card system. Under this plan, the bank credits the account of the merchant as sales slips are received (this means merchants are paid quickly -- something they love!) and assembles charges to be billed to the cardholder at the end of the billing period. The cardholder, in turn, pays the bank either the entire balance or in monthly instalments with interest (sometimes called carrying charges).

The first national bank plan was BankAmericard, which was started on a state-wide basis in 1959 by the Bank of America in California. This system was licensed in other states starting in 1966, and was renamed Visa in 1976.

Other major bank cards followed, including, MasterCard formerly Master Charge. In order to offer expanded services, such as meals and lodging, many smaller banks that earlier offered credit cards on a local or regional basis formed relationships with large national or international banks.

How the Credit Card Numbering System Works

Although phone companies, gas companies and department stores have their own numbering systems, ANSI Standard X4.13-1983 is the system used by most national credit-card systems.

Here are what some of the numbers stand for:

• The first digit in your credit-card number signifies the system:
 3 - travel/entertainment cards (such as American Express and Diners Club)
 4 - Visa
 5 - MasterCard
 6 - Discover Card

• The structure of the card number varies by system. For example, American Express card numbers start with 37; Carte Blanche and Diners Club with 38.
 American Express - Digits three and four are type and currency, digits five through 11 are the account number, digits 12 through 14 are the card number within the account and digit 15 is a check digit.
 Visa - Digits two through six are the bank number, digits seven through 12 or seven through 15 are the account number and digit 13 or 16 is a check digit.
 MasterCard - Digits two and three, two through four, two through five or two through six are the bank number (depending on whether digit two is a 1, 2, 3 or other). The digits after the bank number up through digit 15 are the account number, and digit 16 is a check digit.

How the Magnetic Stripe Works

The stripe on the back of a credit card is a magnetic stripe, often called a magstripe. The magstripe is made up of tiny iron-based magnetic particles in a plastic-like film. Each particle is really a tiny bar magnet about 20-millionths of an inch long.

Your card has a magstripe on the back and a place for your all-important signature. The magstripe can be "written" because the tiny bar magnets can be magnetized in either a north or south pole direction. The magstripe on the back of the card is very similar to a piece of cassette tape.

A magstripe reader (you may have seen one hooked to someone's PC at a bazaar or fair) can understand the information on the three-track stripe. If the ATM isn't accepting your card, your problem is probably either:

• A dirty or scratched magstripe
• An erased magstripe (The most common causes for erased magstripes are exposure to magnets, like the small ones used to hold notes and pictures on the refrigerator , and exposure to a store's electronic article surveillance (EAS) tag demagnetizer.)

Information on the Stripe

There are three tracks on the magstripe. Each track is about one-tenth of an inch wide. The ISO/IEC standard 7811, which is used by banks, specifies:

• Track one is 210 bits per inch (bpi), and holds 79 6-bit plus parity bit read-only characters.
• Track two is 75 bpi, and holds 40 4-bit plus parity bit characters.
• Track three is 210 bpi, and holds 107 4-bit plus parity bit characters.

Your credit card typically uses only tracks one and two. Track three is a read/write track (which includes an encrypted PIN, country code, currency units and amount authorized), but its usage is not standardized among banks.

The information on track one is contained in two formats: A, which is reserved for proprietary use of the card issuer, and B, which includes the following:

• Start sentinel - one character
• Format code="B" - one character (alpha only)
• Primary account number - up to 19 characters
• Separator - one character • Country code - three characters
• Name - two to 26 characters • Separator - one character
• Expiration date or separator - four characters or one character
• Discretionary data - enough characters to fill out maximum record length (79 characters total) • End sentinel - one character
• Longitudinal redundancy check (LRC) - one character

LRC is a form of computed check character. The format for track two, developed by the banking industry, is as follows:
• Start sentinel - one character
• Primary account number - up to 19 characters
• Separator - one character
• Country code - three characters
• Expiration date or separator - four characters or one character • Discretionary data - enough characters to fill out maximum record length (40 characters total)
• LRC - one character

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Best-Rated-Credit-Cards.com
June 22, 2004