⌛ Video Length — 00:04:42
Lesson Summary
Consumer credit may seem like a fairly new invention – but it’s actually been around for more than 5,000 years!
In fact, there is historical evidence that cultures around the world were borrowing for various reasons- such as getting enough silver to buy a property or for agricultural loans made to farmers.
Today, consumers rely on credit to purchase homes, autos and good, but one question I get often is “How did we get here?!”
Let’s discuss a quick timeline of consumer credit, and how we got the modern system that we have today.
3500 BC
It is believed that one of the first western urban civilizations, Sumer, is also the place where the first commercial and consumer loans were provided. You may ask, “Where is Sumer?”
Sumer is the earliest known civilization in the historical region of southern Mesopotamia, which is modern day southern Iraq. As the area was regularly flooded by the Tigris and Euphrates river system, it left rich sediment behind when the waters receded, giving Sumerian farmers the ability to grow an abundance of grain and other crops.
The Sumerians developed arithmetic, multiplication (and division), geometry, and algebra which became the mathematical tools to record and analyze their business transactions. Gradually, large temples, which also doubled as centers of money, kept accounts on clay tablets of who owed what and when.
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.
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.
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.
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.
How has credit changed our country?
It seems that credit has taken a HUGE roll in our financial lives. From buying a new home, or landing your next job, credit has proved to have a major impact on our opportunities- yet still there is very little understanding on how credit scores work and why they are so important.
As technology gets smarter, faster, and innovative, scoring models will continue to emerge as the creditors and lenders collect more and more data about your consumer spending patterns, payment history, debt balances, on top of other critical data points.
The problem consumers face.
One of the cons associated with credit, is it doesn’t always paint an accurate picture of a consumer. Some things it doesn’t consider are:
- Amount of wealth accumulated
- How consumers pay every day bills.
- Bank account health
- College students with limited credit history
- People “outside” of the system like a farmer.
- and other data sources to provide a more well-rounded picture.
But, thanks to the gift of technology, this may soon be a thing of the past. I the meantime, it’s critical to focus on building your credit scores sooner than later if you want the best rates and more approvals.
In this course, we’re going to talk about everything you could possibly need to know about repairing and establishing excellent credit for your future.
Let’s get started.