Encoding credit cards is required to make them function correctly. Although it is illegal for individuals to encode their own credit cards, the encoding process is an interesting one. A credit card works with a magnetic stripe which holds the necessary information to carry out transactions. This magnetic strip is encoded based on the American National Standard for Financial Services Financial Transaction Cards Magnetic Stripe Encoding, which defines everything about the magnetic strip on the credit card from size and location on card, to how encoding is done.

Credit cards are encoded based on three different tracks, though some have a fourth proprietary track. Each of these tracks has different standards and data encoding.

The first track on the magnetic strip is encoded at 210 bits per inch. It uses a 6-bit encryption with 64 different alphanumeric characters, and includes some special characters in order to store the discretionary data (which varies from company to company), the full name, expiration date, the country code, and the PAN, the personal account number. The track holds up to 79 characters, though six of these characters are reserved to assist the card in reading failures. Originally intended for airline use only, this track is now being used by many ATM's to personalize prompts displayed on screen when the card is in use.

The second track on the magnetic strip is encoded at 75 bits per inch, using 4-bit encryption to code 10 digits. The track can hold up to 40 characters, where three characters are reserved for device control and delimiters, though they are rarely used. Recent revisions to the standard allow for it to add a qualification code to classify the card as credit or debit. This track was originally meant for credit authorizations, but it is also in use by ATMs and protecting the PIN on the card. This track may include the PAN, country code, expiration and discretionary data, which some companies use to encode the issue date. Depending on the location of the issuing company, each strip may contain different data, as the country code is not generally used in the United States.

The third track on the magnetic strip is encoded at 210 bits per inch, the same way the first track on the magnetic strip is encoded. Track three follows another standard, the American National Standard Magnetic Stripe Data Content for Track 3, which calls for the track to be able to read and write. This track was meant to be what is able to maintain account balances and other information specific to the card, though many do not use it for this purpose anymore because of how easy it is to manipulate the information and contribute to identity theft.

Knowing how the credit card is encoded will help you understand how it works when it is used. When an ATM eats a card, or the card is no longer read by any machine, it is due to the encoding in the magnetic strip on the card having been damaged.