How (and Why) to Use a Virtual Credit Card

A virtual credit card is a unique, temporary card number that's linked to an existing credit card account. It functions like a regular credit card for online or phone purchases but doesn't have a physical form. Instead of using your real credit card number when shopping online, you can generate a virtual number that acts as a proxy, adding an extra layer of security to your transactions. Read on to learn how a virtual card works and whether one might be right for you.

How virtual credit cards work

When you request a virtual credit card, your card issuer generates a random card number, expiration date, and security code. This information is different from your physical card but is still connected to your main account. You can use this virtual number to make purchases online or over the phone, just as you would with a regular credit card.

Key features of virtual credit cards often include:

Limited lifespan: Many virtual cards are designed for single use or have a short expiration period.
Spending limits: You can often set a maximum amount that can be charged to the virtual card.
Merchant-specific cards: Some issuers allow you to create virtual cards for use with specific retailers only.

Benefits of using virtual credit cards

The number one draw of virtual cards is enhanced security. By keeping your real card number private, you reduce the risk of fraud if a merchant's database is breached. Plus, using different virtual cards can add an extra layer of convenience to your online shopping. You can generate cards instantly for online purchases, all without needing to retrieve your physical card. If you're drawn to that convenience, I do recommend setting spending limits on virtual cards to help control your online shopping habits.

What to keep in mind

While virtual credit cards offer many benefits, there are some potential drawbacks to keep in mind:

Refund complications: Some merchants may have difficulty processing refunds to virtual card numbers, especially if the number has expired. Be prepared to work with your card issuer if this occurs.
Verification issues: Certain services, particularly those requiring identity verification, may not accept virtual card numbers. This can include some travel bookings or age-restricted purchases.
Auto-renewals: If you use a short-term virtual card for a subscription, be aware that the service may be interrupted when the card expires. Set reminders to update payment information if needed.
Limited fraud protection: While virtual cards enhance security, they don't absolve you of responsibility. You'll still need to monitor your accounts and report any suspicious activity promptly.
Potential fees: Some issuers may charge fees for virtual card services. Understand any costs associated with using virtual cards before you start.
Offline limitations: Remember that virtual cards can't be used for in-person transactions where a physical card is required.
Learning curve: It may take some time to get used to generating and managing virtual card numbers. Be patient as you incorporate this tool into your financial routine.

Tips for using virtual credit cards

If you're interested in trying virtual credit cards, make sure you understand their features. Each issuer's virtual card program may have different features. Inquire with your issuer about availability and any associated fees.

Another tip: Consider using virtual cards for your recurring payments. Using virtual cards for subscriptions can make it easier to track and cancel services when needed. And like with all things money, stay organized. Make note of which virtual card numbers you've used for different merchants to help with returns or disputes. And while virtual cards add a layer of protection, you should still continue to practice good online security habits, such as using strong passwords and avoiding public wifi for financial transactions.

The bottom line: Virtual credit cards provide an extra layer of security against fraud and data breaches, allowing you to shop online with greater peace of mind. But like any financial tool, virtual credit cards come with their own set of considerations and potential challenges. While convenient for digital transactions, virtual credit cards may have limitations for refunds or certain services. Understanding their benefits and potential drawbacks can help you decide if virtual credit cards are right for your online shopping needs.

Using a virtual credit card instead of your physical one can help reduce the risk of fraud, especially if a merchant's database is breached. Moreover, setting spending limits on virtual cards can help control your online shopping habits and financial expenses related to online shopping.

If you're concerned about refund complications, be prepared to work with your card issuer if a merchant has trouble processing refunds to virtual card numbers, especially if the number has expired.