A widely available yet often underused tool, virtual credit card numbers can be a great tool when shopping online. The virtual credit card feature was initially created by American Express under the name of 'Private Payments' in 2000 (now defunct), but Citibank and the other credit card companies soon followed suit (along with some online payment companies such as PayPal). These services are used by either downloading proprietary software or using an online-based tool in order to create one-time use virtual credit card numbers. This takes a little bit of extra time and effort versus just using the card that you have in front of you, but it definitely pays off in some instances. Usually promoted as tools to prevent credit card number theft and financial/identity fraud, these services also have some other beneficial uses:

When to use Virtual Credit Card Numbers:

• To prevent credit card theft: Using a virtual credit card number for every online transaction you perform, while safer than using your standard digits, is overkill for most. It is however a good idea to use this service when you are buying from sites that you have never dealt with before, especially those that seem sort of 'shady'. If you don't feel comfortable, be safe and take the extra few minutes to create and use a virtual number.
• To prevent unwanted charges to your credit card: Have you ever signed up for those 'free' one-year magazine subscriptions? They try to get you by hoping that you will forget to cancel and then hitting you up with charges at the end of the first billing cycle. This is a perfect example of when it's smart to use a virtual credit card number. These virtual numbers usually expire after one use, or a predetermined length of time, and as such cannot be charged again in a year's time. That way if you forget about canceling the magazine, there is nothing that they can do—the company will try to run the number provided initially and it will come back as invalid.

When NOT to use Virtual Credit Card Numbers:

• When using your credit card as a guarantee for something: You never know exactly when your virtual credit card number will expire, so it's not a good idea to use it as a guarantee for anything as you also do not know when the other party will check on the card information.*
• To pay for something that you will actually pick up at a retail location: Most of the time you need to show the card you purchased your item(s) with to the store cashier or clerk. If the numbers don't match, then you're out of luck. Applies to such things as will-call sports tickets, movie and event tickets, 'pick-up-in-store' items (Best Buy, Sears, Circuit City, etc.), pre-order merchandise, airline tickets, hotel stays, and rental cars.
• Any charges that are recurring: Utility bills and such. Unless you plan on giving them a new number every month.*
• When shopping at trusted sites: You are almost always safe when shopping at the big-name stores' web sites. The ones that everyone knows and that you have shopped at without incidence before. That's not to say that you can't use them on these sites as well, but you could argue that it's an unnecessary waste of time.

*The exception to this is the Discover Card Secure Online Account Number tool. This virtual number expires on the same month and year as your physical card, so the number will not expire after one use or after a predetermined length of time. Note that each number can only be used at one particular merchant though.
 

Of course, your credit card information can be stolen in any number of ways, not just through the internet. It is actually more likely to have your number stolen offline as long as you use safe shopping practices (source: TrustedID.com). I have had my credit card information stolen twice in the past year, and I can pretty much guarantee that the information was apprehended when I was placing online transactions from my home computer. Luckily in both instances my card companies caught it within twenty-four hours and I was not liable for any charges not made on my behalf. If it can happen to me then it can definitely happen to you, so be careful.

More Information:

PayPal Virtual MasterCard Debit Card
Discover Card Secure Online Account Number
MBNA/Bank of America ShopSafe
Citibank Virtual Account Numbers