A credit card allows you
to borrow money to buy things. There can be a cost to borrowing that money
(interest and fees), but there can also be a benefit (rewards and building your
credit). The first credit-card-like payment charge
method showed up in 1950 when Ralph Schneider and Frank McNamara founded Diners
Club and issued its first cards. But this wasn’t truly a credit card. Instead,
it was a charge card that required the cardholder to pay the entire balance off
each month. Here’s a quick timeline of the history of credit cards:
·
1958: Bank of America issues the first
general-purpose credit card that offered a “revolving credit” feature
·
1958: American Express Company issues a
travel and entertainment payment card. This
paper card could be considered the first modern credit card. The BankAmericard
came with a $300 limit and was the first credit card to offer revolving credit,
which gave people the ability to carry a balance.
·
1969: The International Business Machines Corporation
(IBM) helped develop a standard
for magnetic strips that would eventually be adopted internationally. This
standard allowed credit cards to use magnetic strips to transmit card
information worldwide.
·
1976: Bank of America spins off
BankAmericard and joins with other banks to create Visa
·
1979: Mastercard brand comes into
existence ( formerly the Interbank Card Association and Master Charge)
·
1986: As a subsidiary of Sears, Dean Witter Financial
Services Group, which was a subsidiary of Sears, launches the Discover Card
·
2015: Europay, Mastercard,
and Visa (EMV) chips become standard to help
protect buyers against fraudulent card transactions
We all realize every credit card has a unique string of numbers that is used to identify our individual account data, but that little number printed on your card holds a lot more information than you might think:
Major Industry Identifier-The very first digit of your
credit card number identifies whether it’s banking and financial services
card, a travel and entertainment card, an airline-issued credit card, a store
card, a gasoline card and so on. It’s called the Major Industry Identifier (MII),
an international standardization established in 1989 by the International Organization for Standardization. Each number zero through nine
has a specific meaning attached to it:
·
0 — Reserved by the International
Organization for Standardization
(ISO) for
future industries
·
1 — Airlines
·
2 — Airlines and other future industries
·
3 — Entertainment, travel and banking
(think American Express and Diner’s Club)
·
4 — Banking/financial
·
5 — Banking/financial
·
6 — Merchandising, banking/financial
·
7 — Petroleum, future industries
·
8 — Health care, telecommunications,
future industries
·
9 — A national identifier (followed by a
three digit number unique to each
country)
Issuer Identifier Number-The first six digits of a credit card
(including the MII) are used to identify the issuing institution or bank.
Institutions are assigned this unique identifier known as the Issuer Identifier
Number (IIN) also sometimes called the Bank Number. In the case of large
institutions, a range of numbers is assigned and can be used by the company to
identify important information, such as the country where the card was issued.
The Digits after the IIN-The remaining digits of a credit
card number following the IIN (except for the last number) make up the account
number that identifies the holder of the card. The account number can be from
six to as many as 11 digits long.
The Final Digit (the “Check Digit”)-This number is calculated using
an algorithm that is applied to the other numbers on the card. It’s a very
basic way to avoid the fraudulent creation of credit card numbers using an
institution’s IIN and a nonexistent account number.
The Three Digits on the Back-The three (or four) digit
security code on the back of your credit card was created as an attempt to
avoid the fraudulent use of credit card account numbers for remote purchases. The
actual name of this security number varies by institution, with no apparent
standard. You will hear it called a card security code (CSC), a card
verification code (CVC), a card verification value (CVV) or even a card code
verification (CCV).
You Can Use Math to Verify a Credit
Card Number-If you ever want
to see whether a credit card number is valid, add every other digit
starting with the MII and multiply them by two. Then take each undoubled number
and add them to the doubled ones. If you end up with a number divisible by 10,
then the credit card number in question is real and valid. If it is not
divisible by 10, then you have either an invalid or fake credit card number on
your hands.
Issuers Have Added Numbers over the Years-When early credit cards were first issued, they had as few as eight or nine digits. Today’s credit cards use a minimum of 13 digits, and some are up to 19 digits long. The most common issuers, Visa and MasterCard, have standardized 16 digits in the U.S., while American Express uses 15 digits. A credit card includes the currency the card is issued under and whether it’s a debit, credit, or gift card. This information is all held within the IIN of each institution, and the issuers themselves get to determine how they use the range of numbers they were assigned. The current system of credit card numbering is likely to be replaced or at least enhanced soon by newer Chip and Pin technology.
The Federal Reserve has found that Americans are approaching $1 trillion in credit card debt. In 2019, there’s just no good reason to have a credit card. To conclude this post, let’s see what Christian Financial Expert Dave Ramsey (www.daveramsey.com) has to say about credit cards, and the debt they can cause.
What if I pay off my credit card
debt each month? I’ve heard it
time and time again: “I can pay off my credit card each month! So what’s the
big deal?” Here’s the big deal:
·
One in three Americans are behind on
bills.
·
The average credit card balance is
$6,506.
·
Studies show you’ll spend more when
swiping a card versus using hard-earned cash.
Even if you think you’ll keep a level head about the amount of money you’re spending, the odds are stacked against you. Payments and late fees have a tendency to pile up, and they steal more than your paycheck. They steal your joy too. There’s no positive side to credit card use. There’s no beating the system, because it’s all been set up to benefit the credit card companies not you.
These companies know you’re likely to overspend and rack up thousands of dollars of credit card debt. Over the years, that means you’ll pay them thousands of dollars in interest as you carry a balance. Even if you promise to pay it off every month, all it takes is one lost or missed payment to make the situation exponentially worse. If that happens, your interest rate skyrockets, your credit score drops, and you get slapped with fees. With just one mistake, you’ve gotten yourself into a big money mess.
What about my airline miles, cash back, and rewards? Everyone knows the way to wealth is to accumulate credit cards points. (I’m just kidding. I can’t even say that with a straight face.) I love a good deal, but that’s not what you get with a credit card. There’s always a catch. Here are some promotions credit card companies use to try to get you:
Airline Miles-People love
airline miles. It’s one of the most common reasons for having a
credit card. I think they are seriously overestimating what these travel points
are actually worth. For example, a popular sign-up bonus I see on several
different cards is for 50,000 airline miles or travel points. That sounds like
a lot. You should be able to fly round trip to Jamaica like three times right? No,
actually, from where I live (Nashville), 50,000 airline miles would barely get
me one round-trip ticket.
But let’s say that seems worth it to you. Credit
cards that offer airline miles usually have an annual fee between $70 and $100.
Once you’ve blown through the points you get for signing up, you’ll need to
spend around $8,000 on the card every year for three years to get another free
round-trip ticket. Even if you pay it off each month, in those three years,
you’ll have spent at least $210 in annual fees alone. You can buy your own
plane ticket for that amount.
Cash Back-I love cash, but this is one instance when I don’t recommend it. You
have to spend thousands on a credit card to get meager $100 cash back. By the
way, it’s probably just a credit applied to your account, not actual cash in
your pocket. That cash back is a fraction of what you’ve paid in interest on
the credit card debt. I know we’re all just looking for ways to come out ahead,
but this isn’t it. It’s just not worth it. So keep your real cash instead.
Rewards-Plenty of people love credit cards for the sole purpose of using the
rewards or coupons they get. This is especially true of store credit cards.
And, sure, you might get free shipping twice a year or a 15% off coupon the
first Tuesday every other month, but is it really saving you money? You’re so
excited to take advantage of your 15% off exclusive card member “benefit,” and
you rush to the store or website. You get there, and they’re having a sale.
At this point, they’re practically paying you to shop. So you
wind up going on a $150 shopping spree, which is $50 over your budget. Suddenly
that 15% you saved turns out to be a debt (especially if you don’t pay off the
balance and then have to pay interest). You’ve just won more credit card debt,
and your reward wasn’t really a prize at all.
How do I keep my Fair Isaac Corporation (FICO) score up without a credit card? Creditors have convinced everyone
that it’s impossible to live without a credit score, and that’s a lie. Our
culture pretty much idolizes the almighty credit score. We think it somehow
proclaims to the world how awesome we are at managing our finances. In reality,
all it does is announce how much we love debt. You can live without a credit score.
A high FICO score doesn’t mean you’re
wealthy. In fact, as you pay down your debts, your credit score goes down.
Your FICO score
only measures your debt: how much you have, how much you use, and how often you
pay it back. You’ll never build wealth that way. Here’s another reason people
want to build their credit score: “I need a credit score to buy a house. "The
truth is: You can buy a house without having a
credit score. You just need
to find a mortgage company that does manual
underwriting. This means
they’ll make a judgment call about you based on the details of your actual life
rather than simply relying on a few debt-related numbers. They’ll look for
things like a strong history of paying your rent and utilities on time and how
long you keep a job.
Can I shop online without a credit
card? I love Amazon
Prime as much as anyone, but guess what? I shop with my debit card. You may
have heard that paying online with a credit card is safer so that’s a good
reason to keep it. Did you know a debit card offers the exact same fraud
protection as a credit card? That safety theory is simply a myth. Here’s my tip
for online shopping: Always check your
budget first, and
before you make a big purchase, sleep on it. Living within your means is all
about being clear and intentional about how you’ll use your money. Managing
your impulses is a huge piece of this.
Does anyone use cash instead of a
credit card? Some convenience
stores and flea market vendors will even give you a discount for paying with
actual cash because they get to avoid processing fees when you do. But here’s
why paying with cash really gives you an advantage: You’ll spend less. Studies
show you spend more when using plastic. When you pay with cash, it’s an
emotional transaction because you can feel the money leaving your hand. You don’t
get that same feeling with credit cards.
Taking out a
credit card is easy because you know nothing happens to your bank account at
that exact moment. If you miss the convenience of a credit card, use a debit
card. It works just like cash. What would your life look like if you stopped
reaching for the credit card? What if you got out of credit card debt for good
and had no more payments? Think you know all about that ever-present little
piece of plastic you carry in your wallet? Most of us look at our credit cards
on a regular (even daily basis), but how much attention do you pay to them?
“I’m a Christian.
Years ago, I went broke, so I decided to run every part of my life according to
the Bible. It sounds hokey, but it works. You run your marriage that way, and
it works. It will work with business, too, and finances. Treat people like you
want to be treated. “(Dave Ramsey)[i]
[i] Sources used:
·
“7 Things You Didn’t Know About
Credit Card Numbers” By:
CardRates.com Staff
·
“EMV” From Wikipedia
·
“FICO” From Wikipedia
·
“IBM” From Wikipedia
·
“International Organization for
Standardization” From Wikipedia
·
“What Is a Credit Card?” by Nerd Wallet
·
“When was the credit card invented?” Written
by Lance Cothern
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