I have been practicing bankruptcy law for over 22 years and one of the most frequently asked questions is: “how does bankruptcy affect my credit.” The answer to this FAQ is individually specific. So in order to answer this question globally, I am writing this series of blogs to provide insight into how credit ratings originated, how they work, and how someone can improve their creditworthiness.
History of Credit. No one really knows when the first transaction on credit took place. However, most historians agree Hammurabi, the 6th King of the First Babylonian Dynasty, reigning from c. 1792 BC to c. 1750 BC, was the first to write laws governing the legal rate of interest on a credit transaction. His code set the ceiling on interest rates for various loans. We can infer from his laws that in the 1700s BC, there were issues between lenders and borrowers centering around interest charged on loans.
Somewhere between 800 AD and 1545 AD, due to explorations by sea, merchants began selling their goods to buyer in different lands. The exchange of goods and credit increases greatly during this period. In 1545 AD, King Henry 8th established the legal rate of interest in England to be 10%.
King Henry 8th’s actions in setting the legal rate of interest in England sparked debates on interest rates between merchant and buyer. There were 2 sides to these debates, those that believed a limit on interest rate for credit was morally right and those that believed the higher the interest rate the better to raise capital to offset capital shortages created by lending on credit.
Between 1760 and 1840 the world experienced the industrial revolution. During this time there were advances in the processes of how things were produced, along with the initial uses of machinery to aid in production. These factors laid the groundwork for a credit boom in the United States birthed in the early 1900s.
In 1908 Henry Ford started the automobile revolution by mass producing his Model T. The idea was to mass produce automobiles to make them more available to the public. Unfortunately, at that time most Americans found it difficult to purchase a Model T. Things changed in 1919 when General Motors Acceptance Corporation (“GMAC”) was created. GMAC began offering the purchase of automobiles on credit. Soon thereafter, during the 1930s to 1950, almost all products because available to purchase on credit offered by the merchant.
The first independent “credit card” was introduced in 1950 by Diners Club International. This card was designed for travelers to purchase food and lodging on credit. In the late 1950s other credit card companies sprang up and thus the credit card industry was born.
In the next installment of this creditworthiness blog we will cover the history of credit scoring.
If you have questions about whether filing for personal bankruptcy is a smart choice for you, take advantage of Mooney Law’s experience and free consultations. Call today at 717-200-HELP or 833-MOONEYLAW to schedule your free bankruptcy consultation.