The chip credit card has been around in Europe since the 1980s, but chips on credit cards just made their debut in the U.S. over the last few years.
In October 2015, chips on credit cards became mainstream in the U.S. Eventually, every credit card will become a chip credit card because chip and PIN credit cards offer huge security benefits.
Find out how chip cards work — and why this change is so important for your security.
How does a chip credit card work?
Magnetic strip credit cards contain information that can be easily stolen using a device called a skimmer. Replicating a credit card with a skimmer is as easy as getting a new room key at a hotel. Just swipe the original and then swipe a blank card and it becomes a copy of the original.
Chip credit cards use information located in that little chip on the face of your card. When you insert your card into a chip terminal, encrypted information only usable by the terminal and the processor is transmitted. The information is encrypted using three cipher algorithms known as 3DES, or triple data encryption.
If a hacker tries to steal your card information while in transit from a chip credit card, they will only get jumbled data that isn’t useful for fraud. Because of this, chip credit cards are much more secure than the old magnetic ones you’re used to.
Pros and cons of chip credit cards
With any major change in the world of payments, there are going to be advantages and disadvantages. Here are the pros and cons of chip credit cards:
- Better security through encrypted data transmission
- Makes transactions much more difficult for data thieves to hack
- Slower processing speed at checkout compared to magnetic cards
- No added security for online transactions
Chip and PIN credit cards vs. chip and signature cards
For the most part, U.S.-based chip cards use a “chip and signature” authentication, requiring you to sign your name for transactions. Although this is more secure than the magnetic strip cards, anyone can forge a signature. So, in other parts of the world, the “chip and PIN” method is used for added security.
Chip and pin credit cards work like your debit card. You enter your four-digit PIN to further secure your transaction. If the PIN doesn’t match the PIN encoded in the credit card chip, the transaction is declined.
Even though chip cards are the safest credit cards, there are more secure payment options. Paying using Apple Pay, Android Pay, and Samsung Pay is even more secure since your actual credit card number is never used.
Why chips on credit cards are important
Even with a higher production cost and slower checkout speeds, chip credit cards are still a step in the right direction.
Last year, credit card fraud in the U.S. cost $16 billion. While a portion of that cost is absorbed by banks and retailers, consumers ultimately pay the price in higher costs at the store and the bank. If chip credit cards can cut just a fraction of that $16 billion, the overall payoff is massive.
The credit card data breaches at Target, Home Depot, and other major retailers are good reminders that our payments need to be more secure. Using encrypted data rather than your credit card information can help prevent major losses for companies and hassles for consumers.
After the Target breach, I received a new credit card with a new number. This meant I had to update many automatic bill payments. Sure, I didn’t have to pay for any credit card fraud out of pocket, but it was still an inconvenience to get a new card number.
Chip credit cards are here to stay
Chip and signature and chip and PIN credit cards aren’t going anywhere for a while. Using a chip at checkout is becoming the norm. Because upgrading to a chip terminal can cost hundreds of dollars per terminal, it has taken retailers some time to make the move.
But rest assured, eventually you’ll use a chip everywhere you go. And this is great news that will help keep your information safe and secure every time you shop.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|