So-called "smart cards" are now common among major credit card issuers. They make shopping easier and faster for the holder and can add additional protection against traditional forms of credit card theft. Some users and identity theft watchdogs, however, raise an alarm about the safety and security of the information embedded in the card.

What Is an RFID Credit Card?
Radio Frequency Identification (RFID) technology is now embedded in the cards of most major issuers. Information about the card and its owner is embedded in a tiny microchip in the card. The card can be read by remote machines without being touched by the vendor. Most cards have to be within a few inches of the reader to work, but there is concern that cards can be read by remote machines carried around by identity thieves.

There are several benefits to the new smart cards. Because the card never leaves your sight at a store, cashiers are less able to steal your information by swiping your card twice. It is also more convenient and takes less time to check out at a store.

How Your Credit Card Info Can Be Stolen
According to several identity theft experts, there is a risk that your card can be read remotely by someone standing beside you with a monitor. Radio frequency data can be transmitted through most conventional wallets, even if it is in your pocket or purse. You may never know that your microchip has been scanned, as it is possible to do it with small readers that fit in a pants pocket. If thieves are able to capture your credit card number, name and address, they either can make purchases with the information online or can embed the information in new fake cards.

In 2007, a group of researchers from the University of Massachusetts, RSA Laboratories and Innealta, Inc. purchased two RFID readers and experimented with around 20 credit cards from several different issuers. They concluded that the technology was vulnerable to attack in the transmission of the information and that personal identification was susceptible to theft. They noted that, as the technology matures, future versions would likely beef up security and be less prone to theft. Data stored on many of the microchips is now encrypted, meaning that not only do thieves have to capture the information, but also they have to break the encryption code in order to be able to use the information.

Your best protection against identity thieves is to review credit card statements and bank statements regularly, in order to spot any unauthorized charges. In most situations, the credit card issuer will refund any theft on your card, as long as you report it soon after the event. To avoid having your financial information stolen in the first place, you can purchase one of the many RFID-proof wallets on the market. Popular Mechanics tested some of these wallets and they worked to shield credit cards from remote reading.

These wallets create a so-called Faraday cage, which stops radio frequencies and electro-magnetic pulses from traveling in or out of the shield. Some of the wallets are made of aluminum and some of a nickel-impregnated material. The metal in the wallets keep the readers from accessing the data on the chip. For those with smaller budgets, many people swear by lining a wallet with aluminum foil. The cards can still theoretically be read when you have it out of the wallet and when using it for a legitimate transaction.

The Bottom Line
As financial transaction technology progresses, so too will the methods used in stealing financial information. An RFID-blocking wallet can offer some protection over the new smart cards, but common sense and vigilance is still the best form of protection.

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