You have just finished lunch at your favorite restaurant when the waiter returns with a frown on his face and tells you that your credit card has been declined.
You are about to freak out. You immediately think that someone stole your account information and charged over the credit limit. But once you look at your card, you realize with a mixture of annoyance and relief that the card expired just yesterday.
Why this happens?
The short answer is: prevention of fraud. Major networks (MasterCard and Visa) mandate the issuers (credit unions or banks, for example) to put an expiration date on debit and credit cards. They are meant to serve as another data point which needs to be verified before a charge is made.
Jason Oxman, CEO of Electronic Transactions Association, says that initiating a transaction using stolen card information is simply made harder by the expiration date. You might have the card number, but if you do not have the expiration date, the fraudulent purchase will be denied.
But is this the only reason?
No. The issuers happily comply that expiration date also serves a marketing purpose.
Oxman says that it gives the issuers an opportunity to update the card with a new design or logo and to get consumers to use new technology. One of the examples is that many card issuers use expiration date to replace the outdated magnetic stripe cards with the more secure MasterCard, Visa, Europay or EMV chip versions.
Are these dates really necessary?
Yes, they are. At least for now, when fraud is still a huge problem. But expiration dates might ultimately go away.
Emerging measures of fraud prevention such as biometrics or tokenization might relieve us from the necessity of having outdated data points. And the issuers will not have to worry about the cards’ wear and tear or about rebranding in case more people begin tapping their phones to make payments.
In the meantime, here is what one should do in order to avoid potential inconveniences:
- Write it down in a calendar: Thomas Nitzsche, a certified credit counselor at ClearPoint Credit Counseling Solutions, says that one should write down the card’s expiration date in a calendar. One should keep checking their mail ahead of the expiration date in order to make sure that they receive the replacement for the card that is about to expire.
- Call the issuer: if you do not receive the new card on time, call the card’s issuer.
- Go through a few monthly billing statements: you should go through your monthly billing statements in order to see the recurring charges like insurance payment or utility bills, which are tied to the card, as these payments will not go through when the card expires.
- Contact the service provider: you should contact any relevant merchant or service provider in order to update the card information so that payments can go through without any interruption, recommends Nitzsche. Common charges that recur include gym memberships, loan payments, cellphone or cable bills, and magazine subscriptions.
- Sign up for text or e-mail alerts: you should sign up for the alerts provided by the bank, merchant or card issuer. It helps in spotting the recurring charges which one does not notice during the statement audit. Notifications that are potentially helpful include missed payment alert and payment received alert.
What will happen if I drop the ball?
You might have to experience a disruption in service and incur some late payment fees. In worst-case scenario, missed payments could be reported to credit bureaus, your credit score could get hurt. In case this happens, do not despair. You can simply call them and explain your situation.
Nitzsche says that you can ask them to waive the late charges and to remove them from the credit report. If your credit history is good, most creditors would agree to reverse the penalties.
After that, check the report in order to make sure that all negative information has been removed. You can pull your report for free at myBankrate.
Still looking for more? Feel free to check out our comprehensive personal finance guide to learn more about managing your budget and staying financially healthy.