Credit History - The earliest credit and charge accounts

Credit History: Before there was Plastic...The Earliest Charge Accounts

By Sharon Secor

Direct Lending Solutions Staff Writer

Long before there were credit cards, or even plastic, for that matter, Americans relied on credit, which, for day-to-day matters typically took the form charge accounts with local retailers. It was not only the consumer, however, that relied on credit, but also the retailer. From the earliest days of the United States, credit has been a part of the American way of doing business.

In the early years of the nation, we were primarily an agrarian society, which meant that, for many, income rested upon when the crops were harvested and sold. Credit and charge accounts, rather than the more structured repayment of an installment purchase, which was as common in the early days of the nation as it is today, if not more so, were more individual in nature, relying heavily on the personal relationship between the consumer and the retailer.

What was called store or book credit was a charge account with a retailer. As the name suggests, the records were kept in a ledger, or book. This type of arrangement took place throughout the nation, in cities big and small. It was also a feature of company towns, meaning those that sprung up around a particular factory or industry, such as in coal mining towns, where food and general goods were purchased at a company store on credit until the worker received his pay and would pay the tab and begin again.

Thus, for many retailers, particularly those in rural, farming country or those that were in company towns, without being willing to extend credit through credit and charge accounts, they would not be able to stay in business at all. Credit and charge accounts were mutually beneficial to consumer and retailer, with many retailers having more charge account business than actual cash at the time of sale business.

Because of the more personal nature of the business relationship, repayment schedules tended to vary, according to when the consumer had funds available. A farmer may pay with the yearly sale of crops, whereas a wage worker would pay upon receiving his salary, whether that was weekly or monthly. During hard times, fluctuations of fortune or illness or injury, retailers would often extend credit to tide a trustworthy, longtime customer through, even though payments were sporadic or widely spaced. It was one of the advantages that this local, more personal system had.

Naturally, extending credit had its risks then, as it does today. Then, as now, the court system was used to resolve matters of unpaid debt. However, there was a significant difference between how debtors were dealt with in the past and how they are handled today. Well into the 1800s we had debtors’ prisons, which was certainly more of a hardship than the consequences of today. However, for the average retailer, the gains to be had by working with credit and charge accounts outweighed the occasional loss experienced through non-payment.

Credit cards and other more modern and impersonal means of credit and charge account purchasing became a fixture in the consumer-retailer relationship in the 1950s. However, even today the traditional, more personal and informal types of charge accounts do still exist. Now, as they did then, these arrangements tend to be based on relationships, which means we can expect to always see some form of the book credit retail system that has been with us for as long as we’ve been the United States.

Consumer credit has been a part of the American economy from the beginning. Without extending some sort of credit to customers, many businesses simply would not have been able to operate. Today’s modern means, the credit card, has greatly reduced the degree to which individual retailers personally extend credit to consumers. However, credit itself remains as essential part of the retail economy as it ever was.

Other historical perspectives: Women and Credit | History of Formal Lending | History of Credit Reporting and Scores