From Strip to Chip: Everything You Need to Know About the New Generation of …

1 Oct 2015 | Author: | No comments yet »

Get ready to dip, not swipe, your credit cards.

There’s a Catch-22 in the millennial credit world. Instead of swiping credit cards and debit cards, more retailers are asking consumers to dip them into new card readers that are supposed to be more secure. Fewer millennials are applying for credit cards when compared with prior generations, but staying debt-free for too long can make it difficult to borrow in the future. “By not having any credit cards or student loans, I didn’t have a credit report or credit score,” recalled Allen Walton, a 27-year-old entrepreneur. “I effectively didn’t exist to anyone looking me up.” But to avoid becoming a member of the “credit invisible” generation requires careful planning and financial responsibility to know when is the best time to apply for a credit card and how it will meeting your needs. The technology uses cards with chips embedded in them, and is supposed to cut down dramatically on incidents of thieves stealing card information and making fake copies.

Before Congress passed the Credit CARD Act of 2009, college students were deluged with offers from banks, enticing students with easy credit and loads of goodies to sign up. Businesses have been installing the new readers slowly, but more might have them up and running by Thursday, the deadline set by major credit card issuers for merchants to have the updated card terminals. The law now requires anyone under 21 to either have a co-signer or show proof of income — in effect, preventing young people who may not be creditworthy from getting their hands on a card and running amok.

Those that don’t have the readers by then could be on the hook for any losses caused by credit card fraud. (As opposed to banks being liable, as is the case now.) The transition should be pretty straightforward for consumers, but it can still take a little getting used to. A recent survey by NerdWallet found that 31 percent of people aged 19 to 34 had never even applied for one. “Many of them — like myself — entered the job market during the downturn, so it’s really caused us to think twice about money. Additionally, millennials probably feel like they have enough debt to worry about thanks to student loans,” said business coach Amanda Abella. “I think it’s a mix of misinformation and fear surrounding credit.

Instead of sending retailers and card companies the same information each time they’re used, the way the magnetic stripe on cards works now, the chip sends out a unique code for each transaction. (The official name for the technology is EMV, which is short for Europay, MasterCard and Visa.) The idea is that any thief who is able to intercept the code won’t be able to use it again to make a fraudulent purchase with a fake version of the card later on. (Essentially making it more difficult for someone to go on a shopping spree at a mall in Texas while you are physically in New York.) Anyone who would try to use a fake magnetic stripe version of the card at a chip terminal would be prompted to insert the card into the chip slot, said Stephanie Ericksen, vice president of risk products at Visa. That’s what happened in Europe when retailers installed the technology there years ago, with online fraud doubling in some countries, said Rurik Bradbury, chief marketing officer for Trustev, a company that helps retailers catch online fraud. Retailers are moving to catch fraud online by scanning for details, such as a person’s IP address, e-mail address and other data points, but their information is often limited, Bradbury said.

That’s hardly a score to command a premium card. “It seems that millennials are trying to take on a level of credit they don’t fully understand,” said Gerri Detweiler, director of consumer education for Credit.com. “Popular cashback, rewards and airline miles credit cards frequently come with high interest and some even charge an annual fee. Consumers who want to get a new card can call their credit card companies and request one, said Matt Schulz, a senior industry analyst for CreditCards.com. Unlike conventional credit cards that offer an autonomous line of credit, a secured credit card uses money placed in a security deposit account as collateral. The credit line is based on income, ability to pay and the amount of the cash collateral deposit — for instance, a $1,000 deposit entitles the user to a $1,000 credit line. Based on how the transition played out in Europe, Ericksen estimates it may be two to three years before roughly 70 percent of in-store transactions are done using EMV technology.

A prepaid card taps into deposited funds when the card is used, which does not create any credit record. “You stay out of debt, you pay nothing to get the card, and your credit score goes up,” he said. “My personal score went from nonexistent to 650 to 700, and then all the way up to 798 using this.” However, many of the chip cards banks are sending out in the United States are chip-and-signature cards, where people will use their cards and sign for credit card purchases as they always have.

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