Credit cards, along with many identity cards and access cards, have a magnetic strip on their reverse side that contains information about the card and card holder. If this strip is demagnetized, the card will become useless in a card reader, regardless as to whether or not it is valid. A number of objects in daily life can demagnetize a credit card, but if it is handled with care, this shouldn't occur. People who do have cards that no longer work will need to get them replaced by the card issuer.
When a person swipes or inserts a magnetized card into a reader, the reader picks up data from the tiny iron particles in the magnetic strip. The information is contained in binary form: each particle aligns along a north/south axis with some facing up and some facing down. With a credit card, the strip contains data like the name of the cardholder, the account number, the expiration, the pin number to access the card, the security code, country in which it was issued, and other such data. When the card is swiped in a terminal, this information is exchanged with a central server, which authorizes the transaction depending on the available balance and whether or not the card has been reported stolen.
Because the information in the data strip is magnetic, it is susceptible to anything else that is magnetic, since being in contact with a magnetic field will erase the information by realigning the iron particles. Common demagnetizing culprits are the pads used to deactivite security devices in new books, CDs, and movies; some security screening machines; and even small magnets, like those used on the refrigerator. Speakers, some cell phones, and magnetic clasps on wallets and purses can also demagnetize a credit card, and cards such as transit passes used on many subway systems are even more susceptible to this problem. Some credit cards have been known to be erased by strong electrical charges as well, which can potentially reverse the polarity of the iron particles.
When a clerk is unable to run a card because it has been demagnetized, it can be an indicator that the card is fake or stolen. For this reason, many credit card companies may request that a clerk call for authorization on the card, to ensure that there is not a problem with the account. If this does happen to a shopper, he or she should not take it personally; the consumer can simply file a request for a new card as soon as possible, and make sure to keep the new one safely stored in a wallet and well away from magnetic material. People can also use demagnetization to their advantage when they dispose of expired credit cards, because if the card is demagnetized, a thief cannot extract that encoded information and use it to steal the person's identity.