Looking at the History of Credit

History of Credit

You just turned 18, and you’re ready to be on your own, so you decide to buy a house. There is only one problem; you don’t have credit! Most 18-year-olds won’t have credit because they don’t have a history of credit.

For a better understanding of credit, we must first look at the history of credit in the U.S. In the late 1920’s to the mid-1930’s America found itself in the great depression. Black Tuesday, bank failures, and FDR are all synonymous with a dark moment in the history of credit and finance. This era in history caused many Americans to grow weary of financial institutions and become conservative. Cue the end of the war.

After World War II, many veterans were coming home who had left at the age of 18. Young and ready to adapt to life after the war, many looked to buy homes and attend college. The only problem was that the banks didn’t want to extend credit to such a large number of young men who hadn’t built a history of credit because they were off fighting a war. In comes the U.S government to deliver the G.I bill! Young men who had spent the last 2-5 years of their lives fighting a war were going to college and buying homes with a government guarantee.

The economy boomed as G.I.s took on debt to adjust to civilian life. From here the idea of consumer credit was born. Soon different government entities would start extending credit to regular civilians. Once this started inflation would follow, and all those conservative folks from the depression would have to take on debt as they no longer had enough cash to make certain purchases. There begins the history of credit.

Here comes the roaring 60’s.  In an economy fueled by greed, mortgage lenders realized they could give out more money by offering longer term loans. Abandoning the 25% rule that many had adapted years earlier were no more than 25% of an individual’s income could be used to pay for housing a month. This meant that many more Americans had access to homes as those with lower income could now afford to buy houses.

By the 70’s almost every aspect of the economy was dependent on credit. Americans could borrow against their assets to finance other large purchases. Once again dependent on debt to drive growth and somehow we had fallen into the same position as before the depression.

1980’s to the 2000’s played a pivotal role in the history of credit. Throughout the 80’s and 90’s, debt drove the economy and at that point it became the status quo. People were borrowing against their homes to buy cars, pay for education, or pay for unexpected emergencies.

It became normal for middle-income families to experience financial hardships similar to the ones we see now in our current economy. In a quote from Larry Burkett, Author of “Debt free living” Burkett notes the history of credit and its role in finance. Burkett says, “Nothing in the area of finances has so dominated or influenced the direction of our society in the last few decades as much as debt.”

It’s amazing when you consider credit cards have only played an influential role in American life since the 1980s” noting the impact of the history of credit on finance since the Great Depression. History has a funny way of repeating itself.  2007-2009 would be the new dawn of the “financial crisis” where the America government would be forced to take on billions of dollars of bad mortgage loans and the big banks would fail or be forced to split.

Once again, a system fueled by debt would come crashing down, forcing not only the American economy but the global economy into turmoil. The history of credit begins with a simple bill that would allow G.I.’s returning home from the war a chance to pursue a life of normalcy. Click here if you would like us to provide you with the history of your debt.