WalletHub, Financial Company
@WalletHub
Credit cards have chips for added security. Also known as EMV cards, these credit cards have a small metallic microchip that card readers use to process transactions. During payment, the microchip generates a unique code for the transaction which cannot be used for future purchases.
Some older credit cards have only a magnetic stripe to swipe for payments. This stripe generates the same information for each transaction, leaving the card more at risk for fraud. Credit cards in the U.S. with chips are still issued with magnetic stripes as a backup since chip-enabled card readers aren’t offered everywhere just yet. That’s largely because they’re so expensive.
When a card reader lacks chip technology, you’ll be asked to swipe your card using the magnetic stripe. In those cases, your card is less protected than if you could “dip” your chip instead. All major credit cards have $0 fraud liability policies, meaning you won’t be held accountable for fraudulent purchases. But you don’t want to go through the process of reporting and correcting fraud, so you should use your credit card’s chip whenever possible.
Credit cards with chips come in two major varieties: chip-and-signature and chip-and-PIN. Chip and signature cards aren’t quite as secure, but they’re still more widespread in the U.S.
James Bronzz, WalletHub Analyst
@jbronz
In practical terms, credit cards have chips because U.S. card networks and issuers have taken big steps to make sure cardholders are able to use EMV chip technology. Merchants are also liable for fraudulent charges made with swiped credit cards (but not “dipped” chip credit cards) now, so there’s an incentive for merchants to make the leap to chip card readers.
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