What you need to know about virtual credit cards

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A virtual credit card allows you to make purchases online or by mail or phone without divulging your physical credit card number to merchants. It’s safer than using your actual credit card, because a virtual credit card uses a temporarily generated number.

What are virtual credit cards, and how do they work?

A virtual credit card is a one-time, randomly generated 16-digit credit card number you can use for purchases. The main purpose of using a virtual credit card as opposed to your “regular” credit card is to reduce identity theft. 

The way virtual credit cards work is quite simple. The process may vary somewhat depending on the bank that issues your credit card, but essentially, you log in to your credit card account and choose the option to generate a virtual credit card, if your credit card provider allows it. After setting an expiration date and the maximum amount of money that can be charged, you receive a temporary 16-digit number to use with online merchants or with mail or phone purchases. 

Currently, Citi and CapitalOne are the two primary providers of virtual credit cards, but there are other card issuers who have similar offerings.

Benefits of virtual credit cards

There are a number of benefits to using a virtual credit card over your physical credit card number. These include:

• There is a preset card expiration date: Because you assign an expiration date, no one will be able to make a charge with your card after the set period of time has elapsed. The time can be as short as 24 hours, so even if a merchant with your virtual credit card number was hacked days after you made a purchase with them, you wouldn’t have to worry.
• Only the primary cardholder gets the virtual card option: A secondary cardholder on your account can’t generate and use a virtual credit card. This enhances the security of the virtual credit card, as the primary user is the only one who can take advantage of this option.
• It can’t be traced back to your physical card: It’s almost impossible to link a virtual credit card number back to your physical credit card number. If an identity thief gains your virtual credit card number, your physical credit card shouldn’t be compromised. If the virtual credit card number has expired already, there’s zero risk to you if it falls into the hands of an identity thief, as the thief can’t charge anything to an expired virtual credit card number.
• There is a maximum spending limit: You can set a maximum amount for your virtual credit card. If your virtual credit card number is active and you’ve set a $50 limit on your virtual card, an untrustworthy merchant or an identity thief can’t charge more than that to the number.

Drawbacks of virtual credit cards

Although there are times when using a virtual credit card is a good option, there are a number of situations when using a virtual credit card isn’t possible.

• Virtual credit cards are limited to online, mail or phone purchases: Virtual cards don’t work if you’re making a purchase in person, as there’s no physical card to tap or swipe at the payment terminal. That means you’re limited to using virtual cards online (or if you’re paying for something by mail or phone).
• Obtaining refunds may prove tricky: If you purchase something online using a virtual credit card and need to return it, it may be difficult for the merchant to issue a refund.
• Virtual credit cards often require online accounts: You need an online account with your credit card provider for them to issue you a virtual credit card. If you usually pay your balance by mailing a check and aren’t comfortable using online banking, a virtual credit card may not be a good option.
• Not all credit card providers offer virtual cards: Check with your credit card provider to see if it offers the service, as it’s not an option with many companies.
• Virtual credit cards are not 100 percent fraud preventive: Although more secure than physical credit cards, you can still be charged if someone obtains a virtual credit card number that hasn’t expired or hasn’t yet hit its maximum spend.
• Purchases made online but picked up in person could get confusing: If you purchased an item online and went to pick it up at a merchant that requires you to show your credit card, there might be confusion as to how to complete the transaction. Similarly, if you paid online for a hotel reservation and at check-in were required to show the credit card you used, you wouldn’t be able to do so, and you’d have to explain the situation to the hotel.

How is a virtual card different from a digital wallet?

Digital wallets like Apple Pay, Google Wallet and Samsung Pay store your credit or debit card information on your phone and in the cloud. Unlike a virtual credit card, you can use a digital wallet to pay in-store (if the merchant accepts digital-wallet transactions), or you can use a digital wallet as a service to pay friends and family (similar to Venmo).

When you use a digital wallet in-store, the app on your phone generates a virtual card number to pay the merchant. In this regard, digital wallets are similar to virtual credit cards because a temporary card number is being used.

But unlike a virtual credit card, a digital wallet may not have the protection of being a temporary number or having a maximum limit. If someone was able to physically take your phone and knew your digital wallet’s PIN, they could use your digital wallet to make purchases at a store.

Other ways you can work to protect your identity

Using a virtual credit card online or for mail or phone purchases is just one way to prevent identity theft. Here are some others:

• Check your credit reports regularly: Looking at your credit report to spot—and fix—any irregularities or mistakes is of top importance to protect yourself from identity theft and to make sure your credit score isn’t harmed by fraud. Federal law authorizes you to receive a free credit report every year from each of the three credit bureaus (TransUnion^®, Experian^® and Equifax^®). Request a report from one of the bureaus every four months and you’ll have the whole year covered, all for free.
• Check your bank accounts, too: As with checking your credit reports, regularly going online to make sure your bank accounts don’t have any inaccurate charges is one of the best and easiest ways to make sure you aren’t the victim of identity theft.
• Freeze your accounts: Contact all three of the credit card bureaus and ask them to issue a credit freeze. This means no new credit accounts can be opened—either by you or by identity thieves. Obviously you’ll want to unfreeze your accounts if you’re looking to open new lines of credit, but if you don’t plan to open new credit lines soon,  it may be a good idea to freeze them.
• Report identity theft and change passwords: If you see something malicious on your accounts, report it to your lender or bank, to the three credit bureaus and to the FTC’s identity theft website.   

Fortunately, even if you can’t get a virtual credit card because your credit card issuer doesn’t offer them, the Fair Credit Billing Act (FCBA) still protects your credit card purchases against fraud. You’re never responsible for unauthorized charges over $50. 

To learn more about how you can manage your credit, get in touch with the team at Lexington Law.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.