Our research, news, ratings, and assessments are scrutinized using strict editorial integrity. Our editorial staff does not receive direction from advertisers on our website. Learn more here.
The black strip on the back of a credit card is the magnetic strip. When you swipe the strip through a credit card reader at a point of sale, the reader pulls the very specific information that is stored in the strip. Once the information is read and accepted, the system communicates the transaction through the credit card network, so the amount of the transaction can be debited from the account. The process is so fast that the credit card company can record the transaction instantly.
The Anatomy of a Credit Card Magnetic Strip
Within the magnetic strip are three tracks. The first two almost always contain information, but the third is usually empty. Some credit cards don’t have the third track at all. The information contained on these tracks is encoded, and each has what is called a bit density. For example, the first track has a bit density of 210 bits per square inch. The character data set on the first track is 64-bit. This type of complex encoding allows for 79 characters on the line.
This may seem rather complex, because it is. However, the fact is that there is a specific format a credit card reader can scan and then transmit securely over the system. The exact encoding differs for every card since every cardholder is different.
As for how the information is written onto the card, there are very small magnets within the strip that can be pointed north or south. Think of an old cassette tape and how slipping it into a cassette player would result in music being played. This is somewhat the same concept because information is magnetically written to the strip. However, there is no motor. Instead, your hand swiping the card is how the data on the strip is revealed.
If the card is damaged and the magnetic strip is scratched, then an ATM, gas pump, or other point of sale credit card terminal may not be able to read the card. A credit card magnetic strip may also be unreadable when it is dirty.
Another cause for a malfunctioning credit card magnetic strip is when the information is erased. The most common cause for erased magnetic strips is magnet exposure. It is ideal to not let anything magnetized get close to a credit card or the card will cease to work.
The Switch to the Chip
Overall, the magnetic strip is a simple yet complex piece of technology that helps protect information during a sale. However, scammers attaching skimmers to ATMs, gas pumps, and other machines that accept credit cards has led to more financial institutions moving toward the chip.
Those institutions that have started implementing the chip still have magnetic strips placed on the backs of their cards since there are still retailers using traditional credit card machines. The chip carries information much like a magnetic strip but uses a different type of encoding in a computer chip that is embedded in the card which is supposed to make it more secure. This doesn’t necessarily mean the magnetic strip is going anywhere soon, but it could one day be phased out.
Author: Jeff Gitlen
Jeff Gitlen writes about a wide range of finance topics including everything from student loans to credit cards to small business financing. Jeff's work has been featured on a number of sites including Bloomberg, CNBC, Forbes, Market Watch, and more.