What is a virtual credit card?

It seems that everything from workplaces to social interactions have gone virtual lately, and credit cards are no exception.

Virtual credit cards have been around for many years, but consumers are showing more interest in using them as a tool to limit potential damage from identity theft or fraud. Trying to decide whether a virtual card makes sense for you? Here’s what you need to know.

How does a virtual credit card work?

A virtual card is not a physical credit card at all. Instead, your existing credit card issuer or bank gives you a “virtual card,” which is simply a temporary, disposable credit card number that you can use to make a purchase online or over the phone.

You can set parameters for that number. For example, the virtual number might only work with a single retailer or for a set period of dates. If a fraudster gets access to that number, they can’t use it to make purchases that don’t fit within those parameters, rendering it fairly useless.

“Virtual credit cards can be useful for consumers who want an added level of security on their purchases,” says John Breyault, a vice president at the National Consumers League, which operates the website Fraud.org. “If I have a virtual credit card number on my Amazon account and Amazon gets hacked, my actual credit card would not be compromised. The hackers would have this virtual credit card number, which they couldn’t use on any other sites.”

Charges that you make with a virtual credit card appear on your credit card statement like any other charge you make with your regular credit card.

Benefits of a virtual credit card

Virtual credit cards can minimize the damage hackers can do if they get access to your credit card number and help you avoid the hassle of a compromised account.

“While regular credit cards have robust fraud protections, they still require you to notice the fraudulent transaction and alert your card issuer,” says Jason Steele, director of credit cards at the website Money. “After the issuer cancels the card and sends you a new one, you have to update your information with any companies that have your credit card information on file. It’s quite the nuisance.”

If a criminal steals your virtual account number, you have the same protections you enjoy with traditional credit cards under the Fair Credit Billing Act. That limits your potential liability for fraudulent purchases to $50, but most card issuers have a zero liability policy for consumers.

Virtual credit card numbers can also serve as a defense against businesses that try to charge you for unintentional purchases, such as automatic subscription renewals.

Drawbacks of a virtual credit card

Virtual cards require some legwork upfront to use. You have to contact your card issuer to request a new number every time you want to make a purchase. Depending on the parameters, you also may not be able to save your card information with a retailer for quicker checkouts in the future.

Another potential drawback is that you could run into difficulty if you need to return an item you purchased with a virtual credit card. If the card number has already expired by the time you attempt to make the return, you may need to go through some extra steps in the process.

While virtual credit cards have many benefits, they’re not entirely fail-safe. Merchants can still charge you too much or add fraudulent charges to a bill or take a payment without delivering the goods and services promised.

“One drawback of virtual cards is that they could make consumers feel too safe,” says Steven Dashiell, credit card expert at the website Finder. “You wouldn’t want to let your guard down and think that you don’t have to check your account ever.”

How do you get a virtual credit card?

You can get a virtual credit card by requesting one from a credit card issuer with whom you already have a relationship. You can usually do this by visiting the card website or logging into the associated app.

Once you request a virtual credit card, the provider will give you a unique 16-digit number, expiration date and security code, which you can use online just like you would a traditional credit card.

Not all credit card issuers offer virtual cards, so if your current card doesn’t support the service, you might consider shopping around for a new card that does.

Some major credit card issuers, including Citi and Capital One, support virtual cards. And American Express is now partners with Coupa Pay to offer virtual card numbers to U.S. customers for business-to-business transactions.

But some do not – in September 2019, Bank of America discontinued ShopSafe, its virtual card program.

Some fintech companies also provide virtual card services. For example, PayPal’s PayPal Key allows users to create virtual account numbers they can use for purchases – and the charge goes to their PayPal accounts. The app Token offers a similar service, generating alternative account numbers for users who don’t want to share their credit card information for certain purchases. And the X1 Card provides users with automatically expiring virtual credit cards to help them avoid getting charged unwittingly when subscriptions or free trials expire – plus it offers a host of high-value rewards.

Bottom line

Virtual credit cards offer great fraud protection, but you do need to do a bit of work to get them. If you’re looking for a safer online or over-the-phone shopping experience, consider using them: You’ll get peace of mind for free. That said, don’t forget that they aren’t foolproof, so make sure you always check your credit card statements to ensure they align with your spending.