What You Need to Know About Your New ‘Chipped’ Credit Cards

Dipping your chip isn’t just about salsa anymore. It’s the latest mode of credit and debit card use, and it should make you less vulnerable to theft.

You’ve probably noticed the small computer chip (sometimes called an EMV chip for Eurocard, MasterCard, Visa) embedded in the front of credit and debit cards issued in the past year or so. Learning to use it may take a little practice, but it should become second-nature soon enough.

How it works

Instead of swiping the magnetic strip on the back, you will insert the card into a slot – a practice called dipping – usually faceup. Leave it there; you need to give the computer in the register and the chip in your card a chance to have a little talk.

There will be some prompts on the screen, asking you, for one, to verify the amount of the transaction. For now, you will most likely need to sign, just as you have been with the old cards. The technology is moving toward using a PIN instead of signing, but that’s likely a couple of years away, at least in the United States.

Once the transaction is over, remember to take your card back. The whole process may take a little longer than swiping the magnetic strip, but not too much longer. If you’re still confused, Chase Bank has posted a helpful video demonstrating how it works. (The process is the same no matter who issues the card).

Other ways of using cards, like giving your number over the phone or online, won’t change. You’ll still need the number, expiration date and the code on the back, just as you do now.

What’s behind the change

If you’re wondering why you need to start doing this, well, it’s really more about protecting the bank’s bottom line than yours. Nilson Report, a trade publication for the payment industry, estimated that card fraud cost card issuers $3.4 billion and merchants $1.9 billion in 2012 in the United States alone. With numbers that large, the card issuers have realized it’s in their interests to move to the chip technology, even if the changeover will end up costing them an estimated $8 billion.

Until recently, card issuers have covered most of the cost of the fraud, but as of Oct. 1, the burden of paying for the fraud will fall on the party that is least chip-enabled. (The exception is for gas stations, which have until 2017 to start accepting chip cards). So, if your bank issues you a card with a chip, and the merchant doesn’t have the technology to read the chip, you can still swipe it, but it will be up to the merchant to repay the card user, not the bank, if fraud is committed as a result of the transaction. In either case, it won’t fall to you, the cardholder, to eat the cost of the fraud.

Stopping the ‘skimmers’

Until now, the main weakness leading to credit card fraud has been the magnetic strip on the back of your card. That strip holds all of your card’s information, and swiping it allows businesses to read the information. The problem is, it allows anyone with the proper tool to read that information, and because it’s the same for every transaction, they can reproduce it and create fake cards.This has led to the popular criminal enterprise known as skimming, where someone gathers the data from the card, then either uses it or sells it to a third party who then starts charging things to your account.

The chip is designed to do away with that. Each time you use your chip-enabled card, it creates a unique, single-use code, so even if thieves figure out how to copy the code, it won’t do them any good, because it can’t be re-used. Indeed, in Europe and Canada, which have used the chip for years, fraud rates are dramatically lower. As a little bonus now that your chip is working, it will make it easier to use your card when you travel to those countries that have adopted the chip standard. The United States is the last industrialized country to do so.

If you’re in the market for a new card, don’t forget to check out our page with reviews and comparison of many top cards. Or if you’re having problems with a bit too much debt on your card, we can help with that, too.

Have you started using your chip-enabled card, yet? Let us know how it went in the comments section or on our Facebook page.