Visualizing 5,000 Years Of Consumer Credit Growth

Consumer credit may seem like a fairly new invention – but, as Visual Capitalist's Jeff Desjardins details below, it’s actually been around for more than 5,000 years!

In fact, many millennia before the credit score became ubiquitous, there is historical evidence that cultures around the world were borrowing for various reasons. From the writings in Hammurabi’s Code to the exchanges documented by the Ancient Romans, we know that credit was used for purposes such as getting enough silver to buy a property or for agricultural loans made to farmers.

CONSUMER CREDIT: 3,500 B.C. TO TODAY

In today’s infographic from Equifax, we look at the long history of consumer credit – everything from the earliest writings of antiquity to the modern credit boom that started in the 20th century.

Courtesy of: Visual Capitalist

Consumer credit has evolved considerably from the early days.

Over the course of several millennia, there have been credit booms, game-changing innovations, and even periods such as the Dark Ages when the practice of charging interest (also known as “usury”) was considered immoral by some people.

A TIMELINE OF CONSUMER CREDIT

Below is a timeline of the significant events that have helped lead to the modern consumer credit boom, in which Americans now have over $12.4 trillion borrowed through mortgages, credit cards, student loans, auto loans, and other types of credit.

THE ANCIENTS AND CREDIT

3,500 BC – Sumer
Sumer was the first urban civilization – with about 89% of its population living in cities. It is thought that here consumer loans, used for agricultural purposes, were first used.

1,800 BC – Babylon
The Code of Hammurabi was written, formalizing the first known laws around credit. Hammurabi established the maximum interest rates that could be used legally: 33.3% per year on loans of grain, and 20% per year on loans of silver. To be valid, loans had to be witnessed by a public official and recorded as a contract.

50 BC – The Roman Republic
Around this time, Cicero noted that his neighbor bought 625 acres of land for 11.5 million sesterces.

Did this person literally carry 11.5 tons of coins through the streets of Rome? No, it was done through credit and paper. Cicero writes “nomina facit, negotium conficit” – or, “he uses credit to complete the purchase”.

MORAL CONCERNS ABOUT LENDING

800 – The Dark Ages in Europe
After the collapse of the Western Roman Empire, economic activity grinded to a halt. The Church even banned usury, the practice of charging interest on loans, for all laymen under Charlemagne’s rule (768-814 AD).

1500 – The Age of Discovery
As European explorers and merchants begin trade missions to faraway lands, the need for capital and credit increases.

1545 – England
After the Reformation, the first country to establish a legal rate of interest was England in 1545 during the reign of Henry VIII. The rate was set at 10%.

1787 – England
Philosopher Jeremy Bentham writes a treatise called “A Defense of Usury”, arguing that restrictions on interest rates harm the ability to raise capital for innovation. If risky, new ventures cannot be funded, then growth becomes limited.

THE BIRTH OF MODERN CONSUMER CREDIT

1803 – England
Credit reporting itself originated in England in the early 19th century. The earliest available account is that of a group of English tailors that came together to swap information on customers who failed to settle their debts.

1826 – England
The Manchester Guardian Society is formed, and later begins issuing a monthly newsletter with information about people who fail to pay their debts.

1841 – New York
The Mercantile Agency is founded, and starts systemizing rumors about the character and assets held by debtors through a network of correspondents. Massive ledgers in New York City are made, though these reports were heavily subjective and biased.

1864 – New York
The Mercantile Agency is renamed the R. G. Dun and Company on the eve of the Civil War, and finalizes an alphanumeric system for tracking creditworthiness of companies that would remain in use until the twentieth century.

1899 – Atlanta
The Retail Credit Company was founded, and begins compiling an extensive list of creditworthy customers. Later on, the company would change its name to Equifax. Today, it is the oldest of the three major credit agencies today in the United States.

THE CONSUMER CREDIT BOOM

1908 – Detroit
Henry Ford’s Model T makes automobiles accessible to the “great multitude” of people, but they were still too expensive to buy with cash for most families.

1919 – Detroit
GM solves this problem by loaning consumers the money they need to buy a new car. General Motors Acceptance Corporation (GMAC) is founded and popularizes the idea of installment plan financing. Consumers can now get a new car with just a 35% downpayment at time of financing.

1930 – United States
By this time, efficient U.S. factories are pumping out cheaper consumer products and appliances. Following the lead of GM, now washing machines, furniture, refrigerators, phonographs, and radios can be bought on installment plans. It’s also worth noting that in this period, 2/3 of all autos are bought on installment plans.

THE FIRST IN BIG DATA

1950 – United States
By 1950, typical middle-class Americans already had revolving credit accounts at different merchants. Maintaining several different cards and monthly payments was inconvenient, and created a new opportunity.

At the same time, Diners Club introduces their charge card, which helps open the floodgates for other consumer credit products.

1955 – United States
Early credit reporters use millions of index cards, sorted in a massive filing system, to keep track of consumers around the country. To get the latest information, agencies would scour local newspapers for notices of arrests, promotions, marriages, and deaths, attaching this information to individual credit files.

1958 – United States
BankAmericard (now Visa) is “dropped” in Fresno, California. American Express and Mastercard soon follow, offering Americans general credit for a wide range of purchases.

1960 – United States
At a time when the technology was limited to filing cabinets, the postage meter, and the telephone, American credit bureaus issued 60 million credit reports in a single year.

1964– United States
The Association of Credit Bureaus in the U.S. conducts the first studies into the application of computer technologies to credit reporting. Accuracy of data is also improved around this time by standardizing credit application forms.

1970 – United States
The first Fair Credit Reporting Act is passed in the United States. It establishes a standard legal framework for credit reporting agencies.

1980s – United States
The three biggest credit bureaus attain universal coverage across the country.

1989 – United States
The FICO score is introduced, and quickly becomes a standard system to measure credit scores based on objective factors and data.

2006 – United States
VantageScore is created through a joint-venture between the top three credit scoring agencies. This new consumer credit-scoring model is used by 10% of the market, and 6 of the 10 largest banks use VantageScore.

MODERN CREDIT

The Information Age has enabled a new era in consumer credit and assessing risk – and today, credit reports are used to inform decisions about housing, employment, insurance, and the cost of utilities.

Learn more about how data, the internet, and modern computing is changing credit in Part 2 of this series.

Comments

gregga777 Common_Law Thu, 08/31/2017 - 05:07 Permalink

Gobekli Tepe predates Sumer by 6,000 years! Academics routinely falsify history. The body of the Sphinx exhibits ~1,000 years of erosion by rainwater! The head of the Sphinx was recarved into the likeness of a human from the eroded head of (probably) a lion by the Egyptians. The Sphinx dates from the time of Gobekli Tepe, ~9,500 BC.

In reply to by Common_Law

Setarcos Thu, 08/31/2017 - 03:55 Permalink

Misleading headline.  Civilisations have come and gone.  Different currencies have come and gone and debt has been erased (funny this term "credit", makes it seem that you actually have something of value, rather than really debt).  The average duration of a civilisation is about 300 years, if debt had grown for 5,000 years the current indebtedness, to private banks/Rothschild & Co., would be many many multiples of trillions.  Not coincidentally the current Rothschild scam started about 1780, I can't see it lasting to 2080. As it is Vladimir Vladimirovich has banned the Rothschild criminals from entering Russia and has taken away ownership of the Central Bank from the City of London ... then there is the Eurasian trade partnerships and the dumping of the petrodollar. 

2banana Thu, 08/31/2017 - 04:05 Permalink

It would be interesting to see the growth of fiat and of the wars/destruction of the same fiat currencies in the same chart.There is no free lunch.Even Genghis Khan embraced paper fiat (tree bark) and the "free credit" that went along with it to expand and run his empire.Just try to spend some of that tree bark credit today.      

css1971 Thu, 08/31/2017 - 04:48 Permalink

Most important thing to understand is that banks, financiers don't in fact lend you other people's money. That's a fiction.They simply write numbers into their books, and charge you interest on the debt. This is the way it has always worked. Going back to the start 5000 years ago. They rely on the fact that most people are not interested in carrying large amounts of currency around. This guy has done a lot of research on credit/debt and how it's described in old astrological, alchemical texts. Much of the "making gold" stuff was allegories for how credit and debt works.https://psalmistice.com/Many of the "wise men" were in reality, financiers. Solomon's mines for example were more likely a set of books than a set of extraordinarily rich gold mines. What's beautiful about The Internet, is "disintermediation"... It removes middlemen. They can be replaced by some algorithms. It's far more revolutionary than I ever thought.

2banana floosy Thu, 08/31/2017 - 06:49 Permalink

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It's not magic. In the age when bankers went to jail (ie - pre-obama). The $90 was backed by collateral/assets.  The $90 went to invest in machinery, factory improvement, seed, farm equipment, etc. The bank could show $100 in cash and ASSETS.  The books balanced. Today with ZIRP, negative interest rates, trillion dollar YEARLY defects, bailouts, etc.  The books don't balance.  AND NEVER WILL. And yes, this goes back well beyond obama.  It just went over the cliff with Mr Hope and Change. 

In reply to by floosy

css1971 floosy Thu, 08/31/2017 - 08:36 Permalink

Yeah... They don't even do that. That's the traditional description of FRB but it doesn't describe reality.https://youtu.be/eJETJSME9roThey quite literally just type the numbers into your account.They don't REQUIRE a deposit of cash at all. They only need that if you take out the money they've loaned you, and who does that today? Nobody. Everybody just transfers the credit entry to another account.

In reply to by floosy

Jack4952 css1971 Thu, 08/31/2017 - 07:22 Permalink

css1971 is correct.In ancient times, a man would lend his OWN MONEY to another man. You paid interest to him for the use of his money - he was risking losing his money, plus he could be using it for something else.Today, a bank does NOT lend you its own money - in fact, it is forbidden by law from doing so. It is even forbidden from calling it a "loan" - it is an "extension of credit". When you sign that mortgage application (or whatever), the HOUSE is placed on the bank's books as an asset; AND you are credited with the same amount.In short, the bank loans out NOTHING !!!! Instead, the HOUSE (which you do NOT even own yet!!!) is used as collateral to create that "credit" (money) out-of-thin-air. But you still pay interest to the bank. But WHY? YOU created the money with your signature on the credit application - the bank put up NO money at all! css1971 overlooked the fact that ancient civilizations had discovered that, when interest is compounded, with in a few years the lenders soon control most of the money. This could cause great social and thus political unrest. Hence, the concept of a "debt jubilee" or "debt forgiveness" was practiced. 

In reply to by css1971

Schmuck Raker Thu, 08/31/2017 - 08:24 Permalink

Equifax sucks balls. Just try getting your 'free' credit report out of them. Experian isn't much better.That leaves Transunion. They are relatively ok to deal with.

conraddobler Thu, 08/31/2017 - 08:25 Permalink

It's a farming system for humans or a slave system if you prefer.  It has always been this way.What is "new" is the growing strategy of outsourcing the workload to AI and eliminating the outdated models.   The writing has been on the wall for all of recorded history it is just that until now humans were the most advanced machinery money could buy but that will eventually change.

nevertheless Thu, 08/31/2017 - 09:27 Permalink

The power of revisionist history, discussions about the Iraq war, Syria, WW2, Adolf Hitler, Immigration, the great depression, and on and on, and now finance, leave out the power and influence of the "tribe". How can you discuss finance and leave out the dealings of the tribe? Behind it all, now, like 5000 years ago, the tribe is always behind the scenes working it's diabolical Satanic black magic.