What Is a Virtual Credit Card and How Do Virtual Credit Cards Work?

Highlights:

• A virtual credit card creates a temporary account number, security code and expiration date that stand in for your actual credit card information during online transactions.
• Virtual credit cards can provide an extra layer of security when shopping online. In the event your information is compromised, scammers gain access only to your temporary virtual information, not the data on your physical credit card.
• Virtual credit cards are typically offered online by banks and other major credit card issuers in connection with your existing account, so you won't have to go through an application process to use one.

Your physical credit card offers certain features to help reduce the risk of data theft during in-person transactions. But what about credit card security when it comes to shopping online? Virtual credit cards, also known as digital credit cards, may be one option for security-conscious online shoppers.

How do virtual credit cards work?

A virtual credit card creates a temporary 16-digit account number, security code and expiration date. These randomized numbers are linked to your existing account and act as a substitute for your physical card during online transactions. That way, if your information is compromised, the scammer gains access only to the temporary data generated for your virtual credit card, not your actual account number and other sensitive information.

You can usually request a virtual credit card online from your existing credit card issuer by logging into your account. Data generated by a virtual credit card is typically short-lived and disappears after one use. However, you can easily generate a new virtual credit card when you're ready to make your next online transaction.

Many virtual credit cards include an option to limit use by transaction amount, type and frequency. You may also be able to further restrict use to certain devices or online accounts.

How to apply for a virtual credit card

Virtual credit cards — typically offered online by banks and other major credit card issuers — are linked to an existing credit card account. That means you won't have to apply for a new credit card to use one. Once you request a virtual credit card, you'll generally receive instant approval and activation.

To use your new virtual credit card, simply enter the temporary account number, security code and expiration date at checkout. Some providers may offer a browser extension that pulls in your virtual credit card data automatically. Remember that this temporary information is linked to your real credit card account, so your purchase will be added to the outstanding balance on your monthly billing statement.

Are virtual credit cards different from digital wallets?

Virtual credit cards and digital wallets use similar technology, but the two concepts are not identical. Digital wallets store payment information from debit, credit and gift cards within an app on your computer or smart device. You can then use the stored information to complete transactions without a physical credit card.

Like virtual credit cards, digital wallets use a unique number — known as a token — that is linked to your credit or debit card. These encrypted tokens are generated by your digital wallet each time you make a purchase. That way, if a merchant you've recently visited experiences a data breach, the scammers can gain access only to your encrypted payment token, rather than your physical card data.

Despite the similarities, digital wallets are generally more versatile than virtual credit cards. For example, digital wallets are compatible with a wide range of online merchants, payment applications and software, and you usually access them through a third-party app, rather than a specific credit card provider. Plus, unlike virtual credit cards, digital wallets can also be used for in-store purchases.

Pros and cons of virtual credit cards

Virtual credit cards can help prevent fraud and boost digital security, but they have limitations. Take these pros and cons into account when considering a virtual credit card.

Pros:

• Helps protect your physical credit card data. The primary benefit of virtual credit cards is their ability to conceal your physical credit card information. As a result, they can help shield your sensitive financial details in the face of a digital data breach.
• Can help stop data tracking. Virtual credit cards mask your real credit card account details and can prevent unwanted data tracking.
• Highly customizable. Many virtual credit cards allow users to specify how and when the card can be used. Whether you're a consumer or a business owner, these restrictions can give you greater control over your credit card and help prevent improper use.

Cons:

• Restricted to online or phone purchases. You can't use a virtual credit card to make an in-store purchase — for that, you'll need a physical card or a digital wallet app.
• May complicate your transactions. If speed and ease of use are priorities, virtual credit cards can sometimes slow you down. Additionally, retailers may encounter challenges when issuing refunds or connecting your credit card information to your account. Some virtual credit cards also require users to take extra steps to generate temporary account data, which can be a hassle.
• Can be difficult to make travel reservations. Booking a hotel, flight or rental car? Using a virtual credit card with temporary account data may be inefficient, as travel-related businesses often require your real credit card information to validate reservations.

When using a virtual credit card, remember to follow the same positive credit behaviors you observe when swiping your physical card. Track your purchases carefully, avoid overspending and pay off your outstanding balance in full each month to keep your credit scores high and your finances healthy.