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Virtual credit card

Virtual credit card is a financial tool. Bankrate explains what it is and how it works.

What is a virtual credit card?

A virtual credit card creates an extra layer of security for making a credit card payment. A virtual credit card is a randomly generated 16-digit number associated with your actual credit card account. Your credit card provider may offer this service as a way to protect against fraud whenever you shop without presenting your physical credit card. Once you make a purchase with the virtual credit card number, the number is retired and never used again. This prevents fraudsters from stealing your credit card number.

Deeper definition

When you shop online or pay a bill through the mail, you generally give the merchant your name, billing address and credit card number, as well as the card’s expiration date and security pass code — all information that scammers could use to make further fraudulent purchases. Normally, this isn’t a problem with large, trusted retailers, but you might be hesitant to provide this information to smaller retailers. The virtual credit card number is especially ideal when you write your credit card information down on an invoice because it’s hard to be sure how many people will have access to the information on your invoice.

While almost all credit card companies will reverse fraudulent charges, it can be a big hassle to have unauthorized charges on your account. A virtual credit card number eliminates much of the risk associated with shopping online. Because the number is issued only once and then discarded, it is close to impossible for scammers to take that card number and make subsequent purchases.

Virtual credit card example

Those credit card companies that offer virtual credit card services utilize a software program to create randomly generated virtual card numbers that are linked to a customer’s physical credit card account. When a customer wants to make an online purchase, he can log in to his credit card account and utilize his provider’s program to generate a temporary account number.

The customer can set the spending limits and expiration date for each virtual account number. For convenience, some numbers can be set with an expiration date months in advance, allowing you to create a number to use for purchases expected in the future. The credit card company knows that this temporary number is linked to the original cardholder, but the merchant cannot trace this virtual number to the original credit card.

Virtual credit cards are generally safe and easy to use, but there are some downsides to consider before choosing this option for shopping online:

  • Virtual credit cards aren’t a good option for any purchase where you have to show your physical card. For instance, if you purchase an item online but have to go to a store to pick it up, you may be asked to present your credit card as proof of the purchase. Using a virtual credit card creates a problem in this situation because the numbers won’t match.
  • If you want to return an item to a store, you may also have difficulty getting a refund to your card. Many stores will offer a store credit in this situation.
  • You often need to have an online account with your credit card provider to utilize the virtual credit card feature. The process of accessing the card number does add time, which can be inconvenient if you’re in a hurry.

While there are some reasons you may want to avoid using virtual credit cards, overall the benefits outweigh the inconvenience of this type of payment. Not all credit card companies offer this service, so it may be something to consider if you’re in the market for a new card. With the rise of fraudulent activity online, few people will argue against any procedure that can help safeguard your money and your account.

Learn the pros and cons of making credit card balance transfers.

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