Identity theft and other types of fraud related to the use of credit cards is a way of life these days. Individual and large corporations alike have all been the victims of such crimes. With well-publicized breaches in online security at major corporations, consumers are forced to search for better ways to protect their sensitive financial information. (To learn more, check out Identity Theft: How To Avoid It)
TUTORIAL: Credit Cards

Dangers of Online Shopping
Studies show that more than 87% of internet users are online shoppers. While shopping online is undoubtedly easier and more convenient than the brick and mortar alternative, it is not always the safest option. A 2009 Consumer Reports survey showed that 1.7 million households were victims of identity theft committed over the internet. Two-thirds of those crimes were related to online shopping. In May, 2011, tens of millions of credit card numbers were stolen when three of Sony's gaming systems were hacked. These types of issues have lead shoppers to look into safer alternatives such as single-use credit cards. (For more on online shopping, see Shopping Online: Convenience, Bargains And A Few Scams.)

What Are Single Use-Credit Cards?
Single-use credit cards, also called disposable or virtual credit cards, provide various alias credit card numbers for the same account. Each merchant that you spend money with is assigned a different account number. In this method, your real account number is never revealed. For example, if you use a single use card for your medical bills, your auto payment and your wine of the month club membership, a different account number would be used for each of those vendors, but all of the numbers would be linked to the same base account. Single-use credit cards have been around for over a decade, with American Express and Discover among the first to offer the service. They were created with the goal of making online shopping safer. Citibank and Bank of America also these one-time credit card numbers.

Single-use credit cards cut down on identity theft because your real account number is never revealed during a transaction. Also, you can set a limit on how much money is on the card. For instance, if you only put $100 on a certain account number, that is all that can be spent if the number was somehow compromised. In addition, a thief would only be able to use a given number for one specific merchant, which would limit the ability to make purchases on your account. A single-use credit card is ideal if you want to store your credit card information with an online vendor. Single use account numbers are generated through your financial institutions' website or through downloaded software, and the account numbers can be used online, and for mail and telephone orders.

CitiBank notes that its single-use cards cannot be used for any on-site purchases, including those that require you to show your card at the time of pick-up, because the number on your card and the number used to make the purchase will not match. Another downside is that single-use account numbers only last for 12 months, so you have to update them constantly to maintain automatic bill payments. American Express discontinued the service in 2004 because of a lack of use by consumers. The reasons stated where that it was inconvenient, compared to storing a credit card number on an e-commerce site, and because the majority of customers stated that they felt safe shopping online.

The Bottom Line
Despite their limitations, single use credit cards appear to be a viable option in the fight against credit card fraud. (For more tips, read Credit Scams To Watch Out For.)

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