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What Is a Virtual Credit Card?

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These days, you can't make an online purchase without thinking about security. While you may not be responsible for fraudulent charges made by an identity thief, it can still take weeks to get the situation resolved, and you could end up without any available credit when you need it. Fortunately, there's now a better way to keep your credit your own.

It's called a virtual credit card, and it's designed to keep your online transactions as secure as possible. Here's what you should know about virtual credit cards.

What is a virtual credit card?

A virtual credit card is a temporary, disposable credit card number. By using a virtual card number for online and over-the-phone purchases, you can better protect your actual card number. This reduces your risk of identity theft and credit card fraud, two crimes that have become more and more common.

To get started with virtual credit cards, you need to know how they work. Here's a closer look at that, their benefits and drawbacks, and alternative options.

How do virtual credit cards work?

Virtual credit cards work exactly like regular credit cards. Any credit card transaction still goes onto your regular credit card. You're just entering the virtual account number instead of your real credit card number.

The first step is generating a virtual credit card. Some, but not all credit card companies offer this feature. For example, virtual credit cards are a standard option with Capital One credit cards and Citi credit cards. If you're not sure whether yours does, you can call to ask. You'll find the virtual credit card feature, when available, in your online credit card account.

There are also third-party companies offering virtual card numbers. While some charge a fee, others provide this service free of charge.

Your virtual credit card has its own card number, expiration date, and security code. After you've set it up, you use that card information when you shop online or over the phone. Depending on the virtual credit card service, you may also be able to set a credit limit unique to that virtual card, and a limit on how long the virtual card number works.

Benefits of virtual credit cards

The biggest perk of a virtual credit card is that it protects your real credit card number. When you make any online purchase, there's a risk of credit card fraud. An all-too-common example is data breaches. If you make a credit card transaction on a site and it gets hacked, a criminal could steal your credit card information.

This typically won't lead to lasting financial damage, but it is inconvenient. You can dispute fraudulent transactions made with your credit card. Federal law limits your liability to $50, and most credit card companies offer zero-liability policies.

However, you still need to find and dispute credit card charges you didn't make. If you used your real credit card, then you also need to cancel it and wait for a replacement in the mail.

With a virtual credit card number, you don't need to replace anything. You can just cancel the virtual card if it's compromised. Your physical credit card is still safe, so you won't need to replace it.

Drawbacks of virtual credit cards

There are a few drawbacks with virtual credit cards:

  • For a recurring service that requires a card payment every month, a virtual card may not be the best choice. You'd need to update your card information every time your virtual card is closed or expires.
  • Certain purchases require you to later present the card you used. Examples include hotel stays, rental car bookings, and even ticket purchases. With all of those, you may need to provide the card you paid with upon arrival. That won't work, obviously, if you paid with a virtual credit card.
  • If you need to return a purchase, that could be more difficult if you used a virtual card that's no longer active.

Alternatives to virtual credit cards

There are two other ways to keep your credit card information safe: Click to Pay and payment apps.

Click to Pay is a service offered jointly by the four credit card payment networks (Visa, Mastercard, American Express, and Discover). With Click to Pay, your credit cards are part of a digital wallet. You can make purchases with your cards through Click to Pay and the merchant only receives a unique code for the online payment. It never gets your credit card information.

Payment apps work similarly, although they're used more often for in-store purchases than online transactions. You save your credit cards to the payment app. When you pay using the app, the merchant gets a code for the payment instead of your credit card information.

Where can I get a virtual credit card?

You may be able to get a virtual credit card with one of your current credit cards. It depends on the credit card company. To find out, contact your card issuer through your online account or by phone.

If none of your credit cards have virtual card options, then you have a few choices:

  • Find a credit card company offering virtual credit cards and get one of its cards. As we covered above, Capital One and Citi are two such companies.
  • Get a virtual credit card through a third-party company.

Use a different method to protect yourself from credit card fraud. Click to Pay and payment apps are both convenient solutions.

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