by Joseph Kenny | 03/15/09

Over the last few weeks, something major happened which many people across the country aren't even aware of. With most of the nation's eyes looking to Washington for the inauguration of the new American President, trouble was afoot in the economic underground as one of the major merchant transaction processing companies, Heartland, suffered an immense breach of their databases.

If you're not shocked and aghast at hearing this news, then, well... that's part of the problem, actually.

The reason you probably haven't heard more about this breach is because most people aren't aware of what's really happening when they use their credit cards. They have the impression that when they slide their card through a reader at a local merchant, that the information about their purchase and their card goes directly to their issuer (say, Visa).

However, this just isn't the case. Notice how those machines tend to take dozens of types of cards? This is possible because they are all routed through a middleman: the provider of the machines in the first place, transaction processing companies like Heartland. When you make a purchase, your info is first sent to them, and then passed along to the appropriate bank or credit union that issued your card. Every single day, these companies see the use of millions of cards across the country, cards of every type, used at every type of business. Maybe now it's easy to see why this was such a big deal!

While little direct damage seems to have come about as the result of Heartland's databases being hacked, this does bring up a worthwhile point of discussion: one should know exactly what is happening with one's money and information at all times. When you give your credit card to a waiter in a restaurant, for instance, do you really know what's happening to it? In an economy where more and more things are a matter of digital record, it can pay to be a little bit paranoid.

This isn't to say that you should never use your cards, or that you should go around worrying all the time, of course. There's no need for that. Rather, it's just critical that you develop your own contingency plan, something that you will be able to fall back on and get through a time of crisis when things go awry.

For example, if your credit card information had been stolen from Heartland, what would you have done? First of all, the prudent move would have been to cancel your card immediately (provided that your issuer hadn't already done so). But, if you're a person who primarily uses cards, then what has happened to your spending power? It pays to keep a backup emergency card for just such times.

Moreover, what if some of the charges made to your account as a result of your card being stolen were open to a matter of dispute? Wouldn't you want to be sure that you had plenty of evidence on your side? For that matter, you definitely need to have a system of record keeping in place that allows you to track and monitor your expenditures, to periodically make sure that everything is adding up as it should. Do not simply trust your card's online transaction monitor to do this for you; after all, a charge made by you and a charge made by a thief would show up on there the exact same way, and whose to say which charge is the legit one?

All in all, the more you prepare for disaster, the better you'll be able to recover from it, and our credit card and financial information is one area where none of us can afford any more disasters.