If you’re like the average American, you carry at least three credit cards in your wallet. And, still, you may be flummoxed by the way they work. (What’s with the chips? Or the strip?) Here’s the bottom line.

By Vera Gibbons
Updated December 11, 2012

What are the new chips for, exactly? Preventing fraud. These embedded microprocessors encrypt your personal information and make cards more difficult for counterfeiters to reproduce. Chips, already a standard feature on cards issued overseas, are expected to become mainstream in the United States by 2015.

What does the swipe strip contain? Encoded data, including the card’s expiration date, a code corresponding to the country that issued the card, your personal account number, and in some cases your authorized spending limit.

How is my number chosen? The first digit—typically 3, 4, 5, or 6—designates the type of card you have (for example, 4 is Visa and 5 is MasterCard). The remaining numbers identify the issuing bank and its currency, the user’s account number, and the “check digit,” which verifies that the entire series of numbers is legitimate.

Why are the digits raised? It’s a holdover from the days when carbon-copy machines (called “knuckle busters”) were used to capture credit-card information. Visa and MasterCard are starting to issue unembossed cards with printed numbers. They are easier to produce (banks can make them on the spot) and work as well in digital-card swipers.

Why do merchants ask for my security code? Whether it’s a four-digit number on the front of the card or a three-digit number on the back, this code was added for “card not present” transactions—situations in which the data in the strip cannot be read, as when you’re shopping online.

Is my plastic actually made out of plastic? Not always. Prior to 1950, the first credit cards were made of metal or paper. Today some cards are composed of plastic mixed with anodized titanium or precious metals (such as gold and palladium) to give them a glossier appearance and a heftier feel.


Beverly Harzog, a national credit-card expert and a consumer advocate.

David Robertson, the publisher of The Nilson Report, a financial journal.

Anisha Sekar, the vice president of credit and debit products at NerdWallet.com, a credit-card–comparison site.

Randy Vanterhoof, the executive director of Smart Card Alliance, a nonprofit.