The magnetic strip on the back of a credit card stores many small bits of information that allow magnetic card readers to retrieve the information when the credit card is used to make a purchase. Although stores can charge a purchase to a credit card without a functional magnetic strip, using the magnetic strip speeds up the process.
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The magnetic strip on a credit card actually contains three separate tracks of data, each with a width of about 1/10 inch. The first track contains the credit card number, expiration date, account holder's name, the country in which the card was issued, and 79 additional character spaces that the issuing bank can use in any way. The second track contains the same identifying information, although occasionally not the user's name, plus 40 additional character spaces. The information in the third track of the magnetic strip varies depending on the issuing bank, but it often includes a PIN number, authorised spending amount and the currency units.
How It Works
When a credit card is swiped through a magnetic reader at a point-of-sale terminal, the magnetic reader obtains the information from the strip by analysing the orientation of each of the magnetic particles embedded in the strip. This information is sent through a modem to a company that checks to see if the account is in good standing and has enough credit available to cover the purchase. Once the card is approved, the account holder can complete the purchase.
Because the strip on a credit card is made up of magnetic particles, bringing the card too close to a strong magnet can erase the information encoded in the magnetic strip. Credit cards should not be exposed to strong magnets such as those that hold refrigerator doors closed or deactivate security tags at stores. Even small magnets such as those sometimes used as clasps on wallets can demagnetise cards if they are exposed to them for too long. Physical damage such as scratching and rubbing can also ruin a magnetic strip, so credit cards should be stored in a protective cover or a wallet instead of loose in a pocket or purse.
Thieves have been known to create counterfeit credit cards by changing information in the magnetic strip of prepaid gift cards from major companies such as Visa, MasterCard and American Express. The information loaded onto the prepaid gift cards is actually stolen credit card numbers, often obtained online through illegal means. Credit card users should not only protect their physical credit cards, but also be careful to only provide the credit card number online through secure sites.
Major credit card companies Visa, MasterCard and American Express are all beginning to create new credit cards that store information on a small chip embedded in the card, according to USA Today. These payment cards would be more difficult to use fraudulently because computer chips are more difficult to access and change than magnetic strips.
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