When you’re issued a credit card, it usually has an expiration date. Although credit card expiration dates may seem arbitrary, they are actually calculated intentionally. Credit cards must expire three years from the date of issue in order to comply with fraud and loss prevention laws.
Fraud Prevention
Issuing credit cards with expiration dates is one of the easiest ways to prevent fraud. Thieves often find it easier to steal credit card numbers than to steal expiration dates. This makes it harder for them to use the stolen credit card information; if they don’t have access to the expiration date, online purchases and purchases over the phone will likely be declined. In addition, a thief who creates a realistic-looking card but doesn’t put an expiration date on it will quickly be caught.
Bad Debt Prevention
Having the credit card expire allows issuers to re-check your credit every couple of years. Even though you may have qualified for the credit card when you applied, if your credit took a serious downward turn, you may be denied a replacement card. This helps banks protect themselves against loss from bad debts.
The idea behind credit reporting is that if you have poor credit, you are more likely to get into trouble with your credit card–and more likely not to pay your bill. So credit card companies like to check your current credit score every three years to make sure you are not going to become a liability for them. When your credit card expires, the card company usually checks your credit before allowing you to get a new card.
Marketing and Expiration Dates
There’s also a third reason credit card companies require you to get a new card every three years, and that’s marketing. Credit card companies are in business to make money off of your purchases. That means that they need to encourage you to use them.
Issuing a new credit card every three years helps marketing efforts in two ways.
First, the magnetic strip on your card may be wearing out by the end of the third year. That makes the card difficult to use because merchants have to type the number in manually; if you get a new card with a working strip, you’re more likely to use the card.
In addition, when you get a replacement card, you often can get an updated design. The new card looks more attractive, making it more likely you will use it.
There’s no magic formula to how credit card companies determine expiration dates; the card expires three years from the date it was issued. Expiration dates not only protect credit card companies legally but are also a sound marketing strategy.
